Buy: Clicks
Clicks is a high-quality, defensive business that has traded sideways over the past year, substantially underperforming the market. While its weakness has not been as pronounced as that of discretionary and grocery retailers, we note that sell-side price targets and earnings expectations have not changed over the period. Indeed, the stock has derated substantially over the past year and is trading on a forward earnings multiple of 23.4 — more than one standard deviation below its five-year mean rating. Interim results released in April were strong and underscored the resilience and defensiveness of the group’s business model, with solid earnings growth supported by margin expansion and operational recovery. Divisionally, retail delivered a healthy performance despite a soft consumer backdrop, while distribution showed meaningful recovery after its systems implementation. A 13% increase in the interim dividend further reflected the confidence in cash generation and the trajectory into the second half. Clicks is regarded as a core portfolio holding, and we believe that current levels present a compelling long-term investment opportunity. The price is testing its 200-day moving average at about R364, and could see a possible near-term momentum reversal.
Reduce: Gold and gold miners
Over the past week, gold has surged to fresh records, breaking above $4,300/oz as investors sought safety amid escalating geopolitical tensions and renewed expectations of US interest rate cuts. The rally has been driven by a weaker dollar, growing central bank purchases and heightened safe-haven demand in a volatile macroenvironment. However, a fair amount of speculative activity seems to have entered the market of late. While momentum remains strong, technical indicators are signalling overbought conditions, with prices nearing key resistance levels, suggesting that some consolidation or profit-taking might be imminent before the next leg higher. We would not advocate reducing exposure to gold to nil. Instead, we would take some profit at overbought levels and either invest the proceeds in less demanding exposures, or keep powder dry by adding to positions at lower levels. From a technical perspective, the $3,800/oz-$3,900/oz zone now represents initial support, and a deeper pullback towards $3,400/oz-$3,100/oz would be consistent with a healthy correction within a long-term uptrend.
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