David Shapiro, a closely followed stockbroker, and his long-time pal Alec Hogg, BizNews founder, pick up on the stock markets – in particular how best to catch a ride on companies that have thrived in the era of Covid-19. In this interview on Rational Radio, the two stock market experts explore what’s happening in markets in South Africa and elsewhere with a view to identifying the best investment opportunities and pick up on Covid-19 vaccine developments.
Right now there’s lots of confusion in South Africa. David Shapiro, markets, help us through, what’s happening?
We are holding. Talking from a global perspective, markets are holding up very well. A lot of the reason is that more stimulus packages are expected in the US, and it’s likely that the European one will be passed either today or by the end of the week. That Denmark, Austria, Netherlands and Sweden, who are known as the Frugal Four, have actually conceded and there will be a package. It’s quite a large package in terms of grants, something like €300 billion and there’ll be loans as well.
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Overall markets are celebrating this, but there are other issues as well. More and more news is coming out about vaccines or cures and broadly, the news is picking up even at a slow pace, at least it’s going in the right direction. We can’t complain about the levels of markets, whether it’s at the pace that we used to, or want to, everybody wants lightning speed recoveries. Nobody wants to get rich slowly. Everybody wants to get rich quickly, but at least it’s a slow move in the right direction.
Having spoken about vaccines, we often get these questions about Magda Wierzycka’s 4th IR fund (Sygnia), which has gotten investment in the Oxford vaccine, but do you have any?
I’ve gone for one size fits all. I’ve gone for a Vanguard ETF. It’s the only time I bought an ETF offshore, simply because it gives you exposure to biotech, to medical technology, to the sciences, to big pharma.
We’ve seen some big gains and another story that’s coming through is the elective surgery. We got this from Abbott’s results and from Johnson and Johnson that people are getting back to elective surgery, so a lot of the companies in the devices area are picking up as well. It still remains quite a vibrant sector. Moderna is part of the group that Oxford is connected to. I think they are up 380% this year or somewhere around there. I can’t remember the exact number. I think they’re outzooming Zoom.
The three big ones this year have been Tesla, Zoom and Moderna. AstraZeneca is going to be distributing the vaccine and is making provisions for distribution, there’s a whole lot of sites around that, has had an incredible run as well. When you do find news, it related to the vaccine. The markets are taking off. The big thing is that it gives people confidence, that’s the big driver. People feel better, that a cure will be found and they tend to ignore the infection rates and focus on that side of the market. At the moment, it’s quite a big story.
Dave, you can see on the screen we’ve got Moderna’s share price. Since Covid-19 started in the US, started registering in February, you could have bought Moderna for $19 dollars, today you’ll have to pay $5.
It’s been a big story and the news coming through is reasonably positive. Medical people tend to cover themselves and not want to get too excited, but I think they one of many companies that are moving on in this area. It’s going to take a long time but as long as we know that something’s happening, markets will tend to pick up.
The place to have been is in the Nasdaq. Especially if you bought it around about mid-March at 7,000, you would have picked up 7 to 10 – over 50%. Not bad going, David?
Yes. From the beginning of the year, the Nasdaq is up about, call it 15%, versus a flat S&P. S&P is a much broader measure of the US market. The Nasdaq has outperformed, expect a little bit of underperformance. This has been driven by those Faangs, there is a new description because they add Microsoft in there as well.
It’s Facebook, Apple, Netflix, Microsoft, Google and Alphabet. It’s on the back of those stocks. If we complain about the weight that Naspers and Prosus has in our an index, which is around about 20% to 25% – the same thing is happening in the US. The big five stocks there have the same kind of weighting, if not greater, on the direction of the S&P 500. You’re finding a similar type of situation, but you might find those stocks just easing off a bit during results season. They’ve run very hard. I don’t think it’s really a reason to abandon them yet but expect a bit of underperformance in the months ahead.
From the beginning of the year, the S&P 500 is flat, 0.19%, whereas the Nasdaq is up 22%. You know where you should have had your money, but do you keep it there?
Yes, it might go nowhere. There might be a little bit of catch up, but stay with the winners. These are very, very powerful businesses that generate a large amount of cash as opposed to where we were in 2000 in the Internet bubble. They are probably trading at a multiple, a P/E ratio of 30 versus 20 where the rest of the S&P is, but there’s a reason for that. I still think that in the years ahead, going into the state or economy, going into the cloud economy, going into businesses that are going to grow because of the advance of technology, they will still be the leaders. Don’t expect to be single directional. There are going to be ups and downs along the way, but don’t lose your place. Their results were out last week, ASML.
I looked at it, to add to the BizNews Portfolio. The way that it has performed, it’s very, very hard to believe that it’s going to continue along those lines. It was just over $200, now it’s nearly $400 Are you still confident David?
Yes. Don’t listen to me, read the numbers that came out last week. These are Hollanders or Dutchmen, you’ve got dour leaders there and they’re very, very confident about what they do. They make the kind of machines that the chip makers need in order to produce semiconductors. They’re very confident about their technology. Remember Ian Kantor was talking about them. This is a company which is at the forefront of technology. This is high, high science and a very well-run business, selling these kinds of machines that I can’t explain because you need an engineer or some kind of scientist. It’s virtually a monopoly in the quality of the machines that they make, a big moat around this company.
I’ve got a couple which I’m going to add to our portfolio. Starting off with 2U, I’ve done my research on it. By way of background: there are brothers in Cape Town. Rob Paddock is one of them, who I interviewed last week. They had a company they built up called GetSmarter, which was sold to this business, 2U, a couple of years ago. The two Paddocks got R1.8 billion. They have started a new company, which is focusing on online learning for high schools.
In that interview, he said that 2U is doing really well, that going great guns as they should have because what is going to be the boom in the market in the post-Covid world, it has to be online education. It’s not like your AMSL which is just surging forward. This is an online education company that you can get today at half the price that it was in 2018 when they bought GetSmarter.
If you read through their investment report, they say they have managed to raise about nearly $400 million dollars. So, they pretty flush. At an interest rate of 2%, a 10-year bond at 2%. He was saying that in the last four weeks, they have had more engagements and interactions with provosts, chancellors, etc. because they work with universities to bring them on the line, than they had in the previous 12 years. Here’s one that I’d love you to have a look at.
It’s a massive area and we’re not going to go back. In other words, this kind of education, remote education is only going to grow even if we do find a vaccine because what we found is how we can use it and how schools can use it. How it gives us access to the best brains, either through webcasts or through whatever means. It’s going to be a very, very big area, it’s going to be a growth area.
Also read: David Shapiro: Cyril’s tough Covid-19 rules encourage wealthy to invest outside SA
What I like about the big businesses and I come back to them, call it the big five, the Faangs, those kinds of businesses that have got the muscle and are generating cash are in a position to buy these businesses once they get going. It’s another reason that I like to stay with the big one. But of course, if you can find these things, go for it, Alec.
We have to remember, it’s not the rich people that we’re concerned with. There are so many poor people in this world and there are so many poor students, or areas who can’t afford this. Governments now have to make provision for this. Universities, all education institutions can’t allow those that are stuck at home or those that can’t get access to this kind of education, they can’t allow them to fall behind. We’re going to see huge, huge investment in this area. I am trying to summarise it into one quick soundbite that this has got to explode.
Go have a look at this company, its global market leader in its field, it’s number one in the world in its field. Its revenue in the past five years, an annual growth rate of 56%. That is phenomenal. This is a nice little one, I would only ever have found out about it because of the fact that it bought a South African company called GetSmarter, which is great as well.
Also read: David Shapiro on ‘crazy markets’: post-Covid economy will be VERY DIFFERENT
