Question 1: I own IOOF (IFL) shares, which I bought some time ago at $10.25. I have been thinking about buying more shares around their current price, then selling when the price reaches a stage that I can break even. Do you think it is a good idea to participate in the retail entitlement offer, which would allow me to purchase up to $30,000 of shares at $3.50, or would I be better off investing in something else?
Answer: I have seen too many acquisitions “turn to custard”, particularly potentially “game changing” acquisitions like the purchase by IOOF of the MLC wealth business. You have to ask this question: why can IOOF make a go of MLC when the seller, NAB, can’t?
I remain very sceptical. I also don’t think you should be investing to “average down”. If you like IOOF as an investment prospect, then participate in the SPP. Otherwise, don’t invest.
Question 2: I have a friend who is suggesting I invest in Tesla (TLSA). What are your thoughts? There has been good share price increase but the dividend history is not good. I know electric cars seem to be the flavour of the month but they are marketing in the luxury car market and I wonder if there are limited market opportunities for them?
Answer: Tesla is definitely a stock for “thrill-seekers”. One of the most expensive stocks on any market in the world. Certainly, one of the most volatile. Year-to-date to 9 September, it is up an astounding 338%. Over the last 12 months, up 690%. But over the last 5 days, down 18.1%. I wouldn’t buy (alone) on a friend’s recommendation. Buy it if you are ready for the “thrill” and believe in it.
Question 3: Do you still like Zip Ltd (Z1P)? Do you think the Senate Inquiry into the buy now/pay later industry may result in a re-rating of the company’s market multiple?
Answer: I prefer Zip (Z1P) to Afterpay (APT). I am at odds with the broker analysts, who now see more upside in Afterpay (see Jun Bei Liu’s comments here [1]). According to FNArena, these are the latest consensus target prices:
- Afterpay: target $81.72 (range $28.25 to $106.00) about 10.4% higher than the last price of $74.05.
- Zip – target $6.75 (range $4.80 to $10.28) about 2.1% higher than the last price of $6.61.
Afterpay has the most to lose if the Senate Committee recommends that customer lending suitability (e.g. credit checks) be considered by the provider. That said, in the scheme of things, I really don’t think it is that big an issue. For Zip, I can’t see the Inquiry leading to any re-rating of its multiple. Maybe a short-term negative.
Question 4: I have been wanting to buy a gold miner for quite some time but have never taken the plunge. I have a Gold (PMGold) ETF. Do you think the boat has set sail? If not do you have a favoured miner? I am looking for growth and dividend.
Answer: I don’t think the “boat has set sail” in relation to gold but it will take further US dollar weakness. A lack of confidence in the USA, the soaring US budget deficit, zero interest rates, weak US dollar and bourgeoning US money supply are the drivers behind the gold price. In terms of playing gold, I prefer ETFs such as GOLD, QAU or PMGOLD, or the outright bullion. Shares in gold miners just bring in an additional complication – production issues – and of course, are more leveraged.
Below are the big five gold miners (Newcrest also produces copper), their consensus target prices (from the major brokers), and upside/downside relative to current share price:
- Newcrest (NCM): target $34.96; last price $31.24, 11.9% upside
- Evolution Mining (EVN): target $5.00; last price $5.60; 10.8% downside
- Northern Star (NST): target $13.77; last price $13.03; 5.71% upside
- St Barbara (SBM): target $3.67; last price $3.27; 12.2% upside
- Regis Resources (RRL): target $5.56; last price $5.20; 6.9% upside
Gold miners are not typically big dividend payers. Forecast yields on the above range from 1% to 3.2%.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.