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Before I jump into my predictions for 2018, how did my 2017 predictions do?
Well, I said the Top40 would end the year higher cracking 55 000 and we did that, with the market now in a bull phase.
I also said the rains would return and they did. My preferred stock here was Tongaat Hulett, and they had a poor year losing 20%.
(See https://www.fin24.com/Finweek/Investment/the-case-of-tongaat-hulett-when-sweet-dreams-turn-sour-20171020.) My other rain-related pick was Quantum Foods that has done very well, up some 35% as I write.
The big loser was Woolies, which had a troubled year and is down just over 11% after I expected it to have a good 2017.
I also expected banks to struggle, with the exception being Capitec. Yet the Fini15 is up just over 10% with Capitec up 50%. Richemont was another pick and it’s up around 32%. So mostly a good 2017.
Looking ahead into 2018, and taking into account my expectations for 2018 (see https://www.fin24.com/Finweek/Investment/will-2018-see-the-global-bull-market-hitting-the-skids-20171213), these are my picks for the year ahead:
Exchange-traded funds (ETFs)
Always have a core of ETFs for your portfolio and for 2018, a general Top40 ETF is going to be the easy money.
My preferred equal-weighted CSEW40 may get beaten by the market-cap weighted STX40 (as it was in 2017) if Naspers (owners of this publication) continues to run.
But I always prefer the equal-weighted ETF and we should see a broader market rally in 2018, which will help the equal-weighted index tracker.
SYGWD will lose some shine from a stronger rand but will benefit from the global bull market, and we always want some diverse offshore exposure.
The ASHMID MidCap ETF would be my third ETF pick as smaller SA Inc. stocks find some love. Banks should also do well and STXFIN is the ETF to pick in this space.
SA Inc. stocks
I’ll start with my favourite, Shoprite: it’s a retail machine on a decent valuation and does well regardless of the economy.
Improved consumer confidence will boost spending, and Shoprite will capitalise more than other food retailers.
The Steinhoff collapse has seen Shoprite’s share price under pressure, which is nice for investors who want to buy into the company, and may also finally nix the odds of a takeover of my favourite retailer.
I would love to also add Woolies, but Australia continues to hurt and reports are that the turnaround there is very slow.
Clothing retailers should start to see some love and Mr Price would be the pick here, while banks should also have a better year.
I prefer Capitec, but any of the Big Four – Nedbank, Standard Bank, FirstRand and Barclays Africa Group – should do well.
In the asset management space, it has been a rough year and I would look to add some Sygnia, as it seems to have bottomed.
Good results should follow into 2018 as the DB x-trackers acquisition adds profit.
The listing of more ETFs should also boost earnings as they’re able to cross-sell and use them within their own portfolios, while rising markets will also boost percentage-based revenue.
For those who want a little more spice, two stocks that should benefit if things start looking up in 2018 are City Lodge and Tsogo Sun (or HCI as a discounted entry into Tsogo).
Improving consumer confidence will see these two picking up nicely as disposable spending grows.
My last general pick is Long4Life. The price has come back to a realistic level and the recent deal, buying a Cape Town-based contract bottler, fits with the Gauteng bottler they bought and starts to show some of the strategy. Pepsi anybody?
Commodities
BHP* would be the pick as we are starting to see some supply shortages in some commodities after the glut of 2008.
Anglo American and Glencore should also do very well.
Alternative universe
The bitcoin run will surely slow down in percentage terms, but bitcoin will continue higher as the bubble continues to stretch. Upside price target? Nobody knows, but bubbles of this nature do truly crazy things.
Of course, as with any other bubble, at some point it all collapses. And when it does, get the heck out while you can because this will end in tears.
An important point – being a bubble has nothing to do with the underlying technology. Amazon was a massive bubble during the dot-com area.
It crashed, eventually recovered, and is now one of the world’s largest companies.
The writer holds bitcoin, BHP, Long4Life, City Lodge, Shoprite, Capitec, Richemont, STX40, SYGWD, STXFIN & CSEW40.
Simon Brown is the founder and director of investment website JustOneLap.com.
