Question 1: I have Magellan Financial Group (MFG) shares in my individual portfolio and in my SMSF, and at the moment they are both in the deep red zone. Should I consider accumulating at current prices for future gain?
Answer: Magellan is a “falling knife”. Has it bottomed yet? The key for me will be when you start to see its investment performance improve. Until then, you are going to see further funds outflow and more bad news.
There is no doubt it is ‘cheap’ – but stocks can be cheap for a long time. Interestingly, the broker analysts are now getting bearish on the stock – maybe that is a sign of bottoming and a positive! According to FNArena, the consensus target price is now $13.51 – some 7.5% below the last ASX price. All have ‘sell’ or ‘neutral’ recommendations.
A big call to buy more.
Question 2: In relation to the Betashares GEAR product (GEAR), I think that you should remind readers that there is a potential misconception to this stock. Whilst it gives the impression that it moves 2.2 times to the ASX 200, this is in fact not the case long term. Just look up their long term performance – you are only getting an extra 10-20% more. Why is this the case?
Answer: Thanks for this – you are absolutely right. GEAR multiplies performance in the short term (about a factor of 2.2 times), but if there are a lot of “ up and downs”, the gearing is considerably reduced. Since inception, it has returned 8.87% pa compared to the index return of 7.61% pa. Part of this gap is due to the management fee (0.80% pa), but it is also due to the high distribution return. Unlike the index which assumes distributions are re-invested, GEAR pays out in cash at a very high distribution (averaging around 8% pa). Finally, the mathematics of a rising market followed by a big down may work against it.
Question 3: Appen (APX) reported in line with downgraded expectations in February but declined to provide future earnings guidance. As a result, the share price dropped. Subsequently, two major shareholders have increased their holdings. The CEO has also bought some shares. Is this a good opportunity to pick up the stock for a long term investment?
Answer: I have gone a little cold on Appen. Too many disappointments. The market is cold generally on the tech sector, and where there are dollars going back into tech, it is a case of “prefer others”. I can’t see a catalyst for a re-rating.
As for the brokers, the consensus target price has been coming down. Currently $7.28 compared to an ASX price of around $6.96. Range is a high of $9.15 from Citi through to a low of $5.70 from Macquarie.
Question 4: I have a large holding in LiveTiles (LVT), but at a loss. Your thoughts on LVT as a long term hold?
Answer: LiveTiles is an interesting tech company that is not getting a lot of focus. Earnings are marginally positive, with good growth metrics. The share price has increased since February from about 7c to 11c.
Citi is the only major broker to track the stock – it has a target price of 12c. The concern it has is whether a capital raising may be required by the end of 2022. The Company said that it had $21.6 million of cash on hand at 31/12/21 – Citi forecasts this to fall to $13 million by the end of 2022.
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