Sweets from Heaven … I wonder how many readers remember that short-lived listing from the late 1990s and its rather unpalatable ending on the JSE as a 1c wonder.
Why I mention Sweets is that I saw one of the more prominent asset management boutiques making a reference to the JSE resembling a “candy store” at the moment.
While I don’t have a sweet tooth, I must concur; some segments of the JSE do look particularly enticing. Yes, there is a lot to choose from — and not just in the banking sector. The industrial sector looks surprisingly robust, especially considering the effect the load-shedding lottery has on keeping operations consistently on the go.
I wrote in the FM recently about the strong showings from Invicta Holdings, Argent Industrial and sector doyen Hudaco. These companies all have similar characteristics — they have unflappable management, low(ish) debt, good cash flows and a penchant for share buybacks, they serve essential sectors of the economy and their market ratings are modest.
You could probably add specialist industrial businesses like Master Drilling and Bell Equipment to that list. Both are trading at dismissive earnings despite their products and services being in increased demand.
Those peering through the sweet shop window might have been tempted by the treacle-laden ratings of some counters whose earnings multiples have sagged to low single digits. But pigging out on certain stocks might lead to serious indigestion. In particular I think of steelmaker ArcelorMittal, which, prior to its mid-July trading statement, was at an earnings multiple of barely two.
I can’t imagine anyone expected ArcelorMittal to get anywhere near the 276c a share earnings that were generated in its 2022 financial year. But I also don’t think too many punters expected the company to melt into the red in the first six months of the 2023 financial year.
After the release of the trading statement, novice punters would have learnt that even a 1.5 earnings multiple can be expensive. The business lost more than 40% in just a few hours as the market absorbed the statement. At the time, the 200c share price was far lower than the company had earned in cents per share for the 2022 financial year.
Events at ArcelorMittal will obviously spook punters playing across other cynically valued stocks, especially ones vulnerable to the vagaries of load-shedding. Two that come to mind are aluminium fabricator Hulamin and cablemaker South Ocean Holdings. In both cases trading updates will be anxiously awaited, and I certainly hope hard-gained turnaround traction is not lost.
Ever the doubter, I wonder whether my own “yield sweetening” positions in junior miners Gemfields (see this edition’s Company Review segment) and Merafe Resources need to be reconsidered. Oh, fudge ...
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