It’s been a rollercoaster of a year for investors on the local sharemarket but – despite the big Covid-19 plunge in March and April – it looks set to end with the NZX-50 well in the black.
For those picking stocks in the annual Brokers’ Picks game it has made many of the considered choices from this time last year pretty arbitrary.
But it hasn’t been all bad by any stretch.
In the second half of the year, New Zealand’s strong pandemic response enabled the economy to get back into growth mode.
And with all the stimulus being injected by both the Reserve Bank and Government, investment in housing and equities has boomed.
With vaccines on the horizon, many are now hopeful we’ll see markets continue to stabilise and consolidate growth in 2021.
“We think 2021 is shaping up as a year of recovery, rebound and normalisation,” says Mark Lister, head of private wealth research at Craigs Investment Partners.
“We should see gradual progress towards a reopening of many economies across the world, which should boost global economic activity and corporate earnings, making for a relatively positive investing backdrop.”
Grant Davies, from Hamilton Hindin Greene, says he’s cautiously optimistic heading into 2021.
“Low interest rates have helped to spur the market to record levels this year, and should help to underpin the market in 2021,” he says.
“The vaccine rollout is crucial to maintaining the current recovery rally.”
The top picks
Among the 21 stocks picked by our participants this year the most popular spot was shared three ways.
Healthcare company Ebos, transport and logistics company Mainfreight, and telco Spark were all picked by four players this year.
Ebos is Australasia’s largest diversified pharmaceutical and veterinary products group.
“The structural demand story for healthcare products as the population ages remains robust, while pet ownership continues to increase and will provide further growth opportunities,” says Lister.
Andy Bowley, head of research at Forsyth Barr, describes Ebos as having a “solid growth outlook, improving free cashflow profile, healthy balance sheet with headroom to invest and structural tailwinds”.
“We like the defensive growth profile of Ebos. They’ve had some good updates throughout 2020, but the share price has not kicked on yet,” says Davies.
Probably more of a turn up as a top pick – despite being one of our biggest companies -is telco Spark.
It didn’t feature at all in the 2020 picks.
“Spark have a reasonably attractive dividend yield, and should have a good year if they can avoid the regulator’s gaze,” says Davies.
Hobson Wealth’s Mark Fowler makes the point that demand for infrastructure assets was highlighted by the recent bid for Infratil.
That’s underpinning the pick, he says, “with the additional benefits of 5G and hunt for yield.”
Mainfreight has long been a solid performer on the NZX so it’s not surprising to see it well supported.
“Simply a great New Zealand company,” says Lister.
“The company performed extremely well in 2020, and we think the platform has been set for an even better 2021, particularly if we see an economic rebound take hold as many countries begin to reopen.”
The only negative is that Mainfreight is highly priced, he says.
“Then again, as is the case with real estate, high-quality businesses are rarely cheap.”
Speaking of property, retirement village operator Ryman Healthcare – one of the two stocks to be picked by three brokers this year – is often valued almost as much for its extensive property holdings as for its core business.
“Ryman are set to ride the recent property wave, with a large, well-placed property portfolio,” says Davies.
Fowler describes them as “a blue chip name in the sector with significant growth opportunities in Australia starting to come on stream”.
The other stock with three picks this year was a2 Milk.
A market darling in 2019 it has had a tougher year in 2020.
In fact it took an absolute hammering on the last Friday afternoon before this year’s picks were due to be made.
In an earnings downgrade, a2 said the effect of the disruption in the daigou channel, which represents a significant proportion of its infant nutrition sales in the company’s Australia and New Zealand businesses, had proved to be more significant and protracted than previously thought.
Daigou, which translated means “buying on behalf of”, covers the unofficial group of individuals who shop and send products to China for a profit.
The stock was sold off by as much as 25 per cent at one point, presenting our brokers with an interesting dilemma right before the deadline.
Was it oversold and therefore looking like a bargain for 2021? Or does it face a tougher year ahead?
Some opted out, some opted to stay with it.
“In what proved to be a difficult 2020, we stick with a2 as they continue to diversify their channels and see less reliance on the daigou channel,” says Fowler.
A2 had an uncharacteristically poor 2020 with supply chain issues causing a bit of a speed bump, says Davies.
“Given the quality of the company’s growth to this point, we expect them to get back on track in 2021.”
The only other stock to get more than one pick – in what was a pretty broad field this year – was technology stock Plexure.
The mobile marketing company was picked by MSL Capital and by ShareTrader website members.
It was a strong performer in 2020 and was recently dual-listed on the ASX.
Beyond that, there are plenty of blue chip stocks on our list of picks this year.
Craigs rounds out its picks with F&P Healthcare, which had a huge year in 2020, and Mercury – another strong performer.
Some stocks that were hit hard by pandemic issues also feature, with an eye on recovery in 2021.
Retail stocks get a look in with Hobson Wealth picking The Warehouse and Forsyth Barr picking Kathmandu.
“With the likelihood of dividend reinstatement and management continuing to invest in its transformation we like the turnaround story,” says Fowler of The Warehouse.
Travel related stocks also get a nod – although there are no picks for Air New Zealand just yet.
MSL Capital picks Auckland Airport to gain as the Covid recovery unfolds in 2021.
Hobson Wealth picks online booking platform Serko to benefit.
“Serko have continued to invest in their platform and along with the booking.com JV we [believe] are best positioned for the recovery in corporate travel,” says Fowler.
The 2020 results
The winner of the 2020 Brokers Picks game was Craigs Investment partners, coming in marginally ahead of MSL Capital.
We’ve included the even stronger result from retail investor website ShareTrader here too.
However, Sharetrader was technically just shadowing the game rather than following our stricter deadlines.
For 2021 we have the timings lined up and have included ShareTrader’s picks in the official game.
With the exception of a2 Milk – which dented most of the results with its big slump last week – Craigs managed to pick some of the best-performing blue chip stocks on the market in 2020.
Mainfreight’s 50 per cent rise stands out and Freightways also delivered (pardon the pun) with 19.8 per cent.
It was a good year for companies in the transport and logistics business.
The 37.6 per cent climb for Meridian and 26.1 per cent for Ebos also helped Craigs to the top of the table.
Both MSL Capital and ShareTrader saw a 48.6 per cent return on tech stock Plexure.
MSL also had a strong result with AFT Pharmaceuticals at 33.5 per cent.
ShareTrader’s outside pick on Blis Technologies also delivered with the probiotics producer seeing a 58.8 per cent gain.
Big gains for Eroad (66.1 per cent) and Infratil (50 per cent) helped Jarden to third spot, although Kathmandu (-43.1 per cent) pulled down their average.
Hamilton Hindin Greene had one of the year’s star performers in F&P Healthcare (60 per cent) but saw its results flattened out by Z Energy (-27.9).
Disclaimer – It’s a game
Readers should recognise that the results of the Brokers Picks are skewed by some features of the game. The figures exclude brokers’ fees. Brokers are asked to choose the securities that will give the best short-term performance. If they had been asked to choose, for example, a five-year term, the results might be different. The survey does not allow brokers to review choices during the year. The survey implies a one-size-fits-all approach. It takes no account of individual circumstances such as an investor’s appetite for risk, need for income or tax circumstances. The views expressed do not constitute personalised financial advice and are not directed at any person. Some shares picked may include shares held by the company’s directors and staff. Finally, past performance is no guarantee of future performance.
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