🔒 David Shapiro lets us in on his ‘cheeky’ stock portfolio

In this interview, stock market expert David Shapiro shares his ‘cheeky’ portfolio with BizNews founder Alec Hogg. Shapiro offers valuable insight into the markets and the events driving share prices. He points our attention to day traders from America who have now set their sights on Asia. Also up for discussion are Sun International and the dirty behaviour of insurance companies that are refusing to pay out business interruption claims. – Nadya Swart 

Well good afternoon and welcome to Rational Radio. My name is Alec Hogg, coming to you from Johannesburg – a beautiful, warm sun-shiny Johannesburg and, as always, David Shapiro is with us from his part of Johannesburg. Dave, the Covid-19 numbers are looking very scary at the moment. We had more than 7000 infections yesterday – the top five now in the world on the number of new infections and totally, around the world, yesterday the World Health Organization said it had the highest number of new infections since the coronavirus started. 
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I don’t know if you’ve been following the story, but it’s specifically written in the insurance cover that if there is a disease that causes your hotel to close down (or within 50 kilometer radius of your business) and it stops you from operating, then the business interruption insurance kicks in. But what happened is that the insurers are just refusing to pay. 

They’ve literally taken a view that this is existential for them – the Covid-19 crisis – and they’ll fight it all the way to the courts. So, you are having many businesses now that took out the insurance in good faith, even had a special clause in there (you could have written it for the Covid-19 pandemic) and now the insurance companies will not pay. That’s shocking.

This is not the only instance that we have seen where companies are not fulfilling their obligations. This is nothing new and I can’t understand it, particularly where an insurance company is involved. They are normally high level businesses, they are normally businesses that make up the South African economy and one would expect better conduct. It’s not these businesses faults – they took out the cover in case something like this happens. I can never understand why insurance businesses always try and avoid their obligations where there are 50/50, meet halfway or at least meet four ways. You understand that your clients have paid you the premiums in good faith – why are we always trying to avoid paying out? 

So, they have come; of course, they’ve got their lawyers and they’ve got the small print, and that’s the danger – it is always that small print and having to go to court. You’re running a small hotel. In good faith – you haven’t got the resources that these businesses have. I just find it astonishing. I find it the same with companies who won’t pay their landlords – very big and wealthy businesses who have got the access to resources. You’re in a situation like this, which was brought about by no fault of their own. So, they are going to lose a client. Yes, they might save money, but at the end of the day – these businesses are not going to survive. No one’s going to come and take them over or rebuild them. It’s so sad. 

Dave, you helped us out last week with pointing out the whole Sasol story. How’s the share price reacted in the past five trading sessions? 

I see it’s gone down. I think it’s just simply on the fundamentals – I think they’re pointing downwards, and you’ll probably find the share price heading closer towards 100 than hundred and fifty. Just under a bit of pressure at the moment – as all markets are. But the story to continue is that the so-called retail investors are now turning their eyes on Asia, which is dangerous, and that’s starting to scare the professionals as well. When they start to take some Asian shares and pushing them through the roof for no reason at all. It’s a story.

These day traders from America are now looking at Tencent, Alibaba, stocks like that? 

Probably new emerging Chinese companies. So, I haven’t seen exactly what they’re looking at. I’ve just picked up the headline that they’ve started to turn their attention there. You’ve got to follow the sites, you’ve got to follow where they meet on social media to understand what the next big things are going to be. But it’s not something that I pay a lot of attention to other than – it’s still a big thing, the talk is still around – the companies that they’re going to buy. So watch this space. 

What would Mr. Buffett do in a case like this? Do you think he’d take advantage of the day traders?

No, not at all. He wouldn’t pay any attention to it. This is Mr. Market at his best. It happens in different forms. I’ve lived through it certainly in 1969 – I came in the aftermath of that, but in 1987 – it was there. We saw it; those who are still around, who are still young enough – will remember the internet boom where it was Pets R US and pets.com. All those kinds of dot com companies as well. It does take place, you do find periods of insanity. 

This will not have much of an effect as it did in other blue markets. We’ve seen it in property. We’ve seen it in a whole lot of areas where madness takes place and people who are normally rational just lose all sense of reality and get involved in the market. So, this is just another form of what we’ve seen for many, many times – certainly in my history. 

From Harry Walsh: Which shares do you recommend to buy on the Hang Seng? 

I’m still a Tencent fan and an Alibaba fan, simply because the huge numbers of people that we have in China, and I think you need to go through Tencent’s results in a bit of detail just to see what a powerful organisation they are. And there was a wonderful, wonderful lead in The Economist this weekend on gaming; that gaming should be an Olympic sport. And they drew attention – and this is why I’m bringing up Tencent, and I mean – this applies more to the UK, but you can absolutely look at China as well, but in the UK, the youngsters between 16 and 19 who participate in traditional sports are about 28 percent. Those that actually play video games are about 57 percent. 

So, there’s a huge number of kids that are involved in the excitement. Making it a sport at the Olympics; they did draw attention, they said, you know, it’s exciting. And for excitement, just think about the 20km walk. That’s exciting? What would you rather watch – people playing video games or watching chaps walk for 20km’s. I think that said it all. But it’s a very, very big area with lots of money. So, that and all the other things that you’ll find in Tencent – I think it’s a remarkable company. 

David, two other stories that are going on in the JSE at the moment; start with Sun International – this hostile takeover bid from a Chilean company. It looks very messy all around, doesn’t it? 

I don’t fully understand what it’s all about, but I side with Allan Gray and value investment, saying hold on a sec – these are ridiculously low levels, this is a very proud and good company, and I think you just need things to normalise now to get a lot more value for it. So, I think it’s a very cheeky bid and it’s also perhaps reflecting or deflecting some of the conflicts that they are finding through other deals. So, I think for the meantime, I would just brush it aside as something that’s not going to happen. 

My only thoughts of the survival of this business – this is a noble business and it applies to the whole tourism industry. We look at City Lodge, if we look at other businesses in the area – if we don’t come to their assistance, if we don’t save them… This is the backbone of the whole redevelopment plan. South Africa will not exist without tourism. My hope is that Anthony Leeming can find a bridge. It scares me what the consequences are if companies like Sun International feel the pressure and are forced to go or liquidate some of their assets – you don’t want that to happen. 

So, watching the businesses there – and that’s why I say it’s such a cheeky bid – because when you see the market cap of Sun International on the market – it’s no more than a couple of billion rand with all that bricks and mortars. And the machinery and the people and the intellectual value around the goodwill. It’s just crazy. So my views are that one has to do as much as we can to save this industry and save it soon. 

The Sun International share price – is it something that you would be buying into ahead of the rights issue? 

I’ve got my cheeky portfolio and my cheeky portfolio is those businesses that are being thrown away in South Africa, which would include construction businesses as well as the leisure businesses, and certainly – Sun International is amongst them. I think, for value players – this has got to be a sure bet. If you’re prepared to wait, if you’re prepared to just sit aside and watch this; City Lodge, Sun International – the underlying value is very compelling. So, I think from that point of view, it’s something that must be looked at.

There are those companies that are going to emerge, that we are going to applaud and celebrate and value. And there are those that we’re not going to – they’re going to be in the opposite direction that we’re going to avoid. I keep saying this over and over; they didn’t ask for this. Cathedral Peak Hotel didn’t ask for this. It was forced upon them – try and help them through this. Here’s a business since 1939, and it’s just one of many, whether it’s Sun International, whether it’s companies, you know, especially the smaller businesses – it’s just tragic. And we will never recover unless we support them, unless we do everything. And it’s those with the money that are turning away, and it’s smart lawyers looking for small print. They are not honouring their obligations. It’s a tragic story.