Chantal Marx, head of investment research and content at FNB Wealth & Investments, on what the smart money is doing.
South Africa Inc still looks interesting from a valuation perspective despite weak macroconditions and market volatility. Food retailers are probably the most defensive and among them Shoprite is the clear market leader.
While we might be a bit early on the call, taking a longer-term standpoint we view current levels as an attractive entry point into a high-quality stock with strong fundamentals. Shoprite is trading on a discount of about 25% to its emerging market peers, while it has historically traded at a premium. It is also trading more than one standard deviation away from its historic average forward p:e.
Technically, momentum is down and the stock is trading below its 200-day moving average, making this a speculative call. Still, the price has reached major support which may provide a technical floor. We think there is ample upside potential but recommend a stop-loss at R192 .Richemont has returned close to 100% in rand terms over the past year. Following a pop in the share price after solid results last week, we think it may be time to take some money off the table.
We still like the long-term prospects for the company and sector, but it has run hard and may be due for a breather soon. The Asia Pacific recovery is under way, but we foresee a bit of weakness in North America and Europe near term. Stock price momentum is still solid, however, which makes us cautious to call an outright short, but comfortable to take profit or sell the stock at current levels.
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