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Richard Hirsch: Bank the Google profit – trade “Baba”

This special podcast is brought to you by Webtrader. Richard Hirsch from Standard Bank Online Share Trading is with us in the studio to talk about the global investment portfolio.  Not just ours, but everybody’s.  Janet Yellen, Head of the Federal Reserve – their version of Lesetja Kganyago – has had quite a few things to say.  Dovish statements, which the market has interpreted pretty favourably…

At some point Alec, rates have to rise whether they keep putting it off or it happens sooner, I think the markets always look forward and the markets are already discounting that rates are going to rise.  Rates are at such lows, especially internationally, that at some point they have to rise.  The U.S. is in such good condition that for me, it’s not a terribly thing if rates start to rise.

You say the U.S. is in good condition.  That’s the economy, generally.

Yes.  I think the economy’s in good condition, the labour force is improving, the markets are looking great, and the company results that come out are excellent – company earnings.  I think that the U.S., which I view as the engine room of global markets, is in good condition.

The engine room of the search side of the Internet is Google and last time we spoke, a couple of weeks ago, you said it’s a good trade – around $525.00/$530.00.  I see its $542.00 today.  Are you banking your profits?

Alec, I actually think it’s $552.00.  I looked at it this morning.

I looked yesterday, so you’re still going.  It’s stronger.

I’m still going.  As a trade, it’s been good, especially if you’re trading in a speculative instrument like a CFD.  You would have done really well, but I think Google can easily get up to $580.00/$600.00 if you look at the analysts’ targets.  You just can’t live without Google.  I think that the click-through is improving and Google’s just the one that you have to keep.

It still has a trading range.  Now you’ve ridden it very nicely (thanks to Mr Hirsch) – a good $20.00 on your stock price.  Is it time to maybe bank some of that profit or are you happy to keep going?

If it’s speculative in trading, I certainly would be selling half and looking to be re-entering with the half that you sell, but certainly keep some because I think it can get to $565.00/$570.00 for a trader.

You have a perfect record – 1/1.  What are you going to tell us to trade now?  What are you trading now?

Alec, if I look at what our clients are trading, which I think is more important, is that it predominantly sits in Facebook/Google.  Even the ETF’s based in social media – the Apples and the Twitters – that’s where the action is.  I think that’s where the action is set to remain.  I’ve seen some very interesting reports on Facebook.  Some people think Facebook can go to $100.00.

Where is it currently?

Facebook’s at about $81.00/$82.00.  If you take what Apple’s currently doing and then you take what they’re going to do with cars and homes, I still maintain that Apple will be a $200.00 share in a couple of years’ time.

Let’s get back to Facebook.  You said that it’s currently $81.00 and could get to $100.00.  What’s the motivation there?

I look at what they’re doing.  I look at the companies they own.  They’re key to this entire revolution.  For me, Facebook’s not just a platform any more.  It’s what they have as the ‘come-along’s’ and I think they are very well-positioned.

You say all the action is in the social media space.  If you don’t have a taste of it yet…if you haven’t been playing in that area yet, where would you start?

From an investment point of view, there are some really nifty social media ETF’s that you can get exposed to.  Baba, another one that beat the market’s expectations last week or ten days ago, is on the up again.  I think that Baba might not be a bad entry.

Baba?

Alibaba.  I think it might not be a bad entry – back to $100.00/$110.00.  You can’t trade Tencent directly on our platform but locally, you could trade a Naspers, which is a cheap entry into Tencent.  Not from a PE perspective, but in terms of where the rump of Naspers is valued, it’s currently valued negatively so you’re getting the rest of Naspers for –R100.00.  That’s not Webtrader-based, though.  That’s where I’d focus my energies.

Both of the last two you spoke about are Chinese-based.  Jack Ma with Alibaba (Baba) and Pony Ma with Tencent.  Are there other Chinese opportunities that haven’t been as well exposed?

I would be closest to those two.  I wouldn’t be too ‘in the loop’ on other Chinese opportunities.

So what you would rather do is wait for them to be discovered and then trade the stocks, rather than taking the risk of trying to find the next big one.

Yes, I would think so.  I would stick with the ‘tried and tested’ – the major players.  Amazon’s another interesting one, although I don’t view it as favourably as the others that we have discussed.  For me, coming away from social media, the number one pick is Apple – Apple and Google.

Why Apple?

The cash generation is just, too good.  The cash pile is too big and it’s too cheap.  It’s rather cheaper than the market.  If the S&P is trading on 18/19 times the forward PE, Apple’s on 12/13 times forward PE and it’s just too cheap.

I don’t think the market likes unutilised cash.  They like companies to be doing something with their cash rather than sitting on cash piles.  I know Apple has started to pay dividends and that is changing, but I still think the market would like to see a little bit more utilisation of the cash/returning of the cash.  Dividend-withholding tax is quite steep in the U.S. as well, which sometimes causes companies to be not as attracted to paying out big dividends because of the dividend-withholding tax at 30 percent.  Although you can apply for 15 percent dividend-withholding tax relief, thereby halving your dividend-withholding tax.  You’ve had Steve Jobs leave and the new management team needs to be believe in, which I think is starting.  I don’t know why the iWatch hasn’t pushed it more.  I think you will have every kid eventually, and every kid in China wanting an iWatch.  If you do the numbers, the knock-on effects of that are certainly, ridiculously cheap.  I’m not sure why the market discounted.  Maybe if you’re just, so dominant, I guess the market is a little bit concerned when your dominance wanes.

Okay, so you’ve put that one into your portfolio.  You mentioned Google as well, not just the trade but as a good, long-term bet.

Most certainly.

The two Chinese stocks: one you can play here in South Africa through Naspers and the other one – Alibaba.

Alibaba.

Putting it all together, your clients at Webtrader: what are their favourite stocks?

What we’ve been discussing are their favourite stocks.  That is where the flavour is and that’s where the action is, but we also we have a lot of ‘buy and hold’ types of clients who prefer to trade the ETF’s, the Vanguard S&P500 tracker, the Spider, Dow, or S&P tracker.  Typically, if they’re not speculating in individual shares, the investment’s pretty much going into Exchange Traded Funds, which we think is the way to invest overseas.  You’re not going to be as in touch with those offshore companies for now and for the next 18 months, as you are with the local market.  Just buy an index that gives you exposure to the best stocks in that market and you’ll sleep well at night.  If something bad is happening in one of those particular companies that are in that index – take the Dow, for instance.  There are another 29 stocks, which would not be affected by that one particular share – and you just reduce your risk.

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