In our last webinar on June 7, Paul (Rickard) asked me what my most preferred stock was right now. And I really didn’t have one. After a trade deal is struck (if it ever happens), I think our market will go higher. History says equities indexes usually pass their old all-time high and go higher before crashing. I’ve held the view that our S&P/ASX 200 index will beat 6828 and proceed to 7000 plus before I get sufficiently scared to go all defensive.
On that basis, I like the exchange traded funds IOS, STW and VAS. Regular readers would know I’ve pushed the barrow for years because I can’t see a big risk in holding Australia’s 200 best-listed companies, especially when it pays an OK dividend over 4% before franking. I guess this says it all:
For the cautious types who can live with the ups and downs of capital gains and losses, an income fund like my SWTZ is constructed to deliver income but it can miss out on capital gain. That said, in this game, safety comes at a cost.
Year-to-date, SWTZ is up 14.6% and over the year it has gone sideways, the income paid has been good.
Personally, I’ve paired up STM and SWTZ to make up the core of my portfolio along with banks I can’t sell because the capital gains tax would kill me!
So in a nutshell, if I’m right on VAS, IOZ and STM and if I’m right and we see 7000 on the S&P/ASX 200 over the next year, that will be a 7% gain plus 4.5% for dividends. With franking, you’d be close to 14%. Not bad for the best 200 companies in Australia. And it helps me because I think a lot of good companies have prices that are really elevated, given our short-term economic and company profits outlook.
So that’s the core of my portfolio. Now I’d like to find my next BHP, which I got the hots for in early 2016 when it had a $14-handle on its share price. Given it was once a $40 plus stock, at $14 plus, even if it only went to $20 in three years, my thinking was it would be a return of $5 on say $15, which would be a 33% gain before dividends and franking. I further argued if I can get 10% plus per annum with such a good company I’d be happy. Even if I was wrong, I’d know I still holding one of the best miners in the world so the investment gamble wasn’t all that risky, as long as you were a patient investor.
Remember, that’s our competitive advantage — we should be able to wait for capital gain, provided we’re getting good dividends and franking credits.
So what companies are on my BHP-lookalike short list?
Lend Lease (LLC) has been dogged with troubles but has been an enduring brand. The analysts on FN Arena think the stock can go from its current price around $13 to $15.56, which implies a 19.7% upside. It’s five-year chart doesn’t build confidence but it does make you think that it’s time for a breakout.
I’d like to back LLC but its engineering division has an unhappy knack of coming up with dollar-killing problems and there is a class action ahead, filed by plaintiff law firm Maurice Blackburn, which alleges Lendlease misled investors by not revealing the engineering problems earlier!
Too many curve balls for LLC but I wouldn’t be surprised in three years’ time that it’s over its challenges — but it won’t get my money.
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