There was movement on share markets when the word was passed around
That the virus from old Wuhan had got away.
And had spread to every country, it took stock prices down
So each month our experts gather to the fray. 

When Banjo Paterson wrote The Man from Snowy River in 1890, it was a far cry from what the world is experiencing now due to COVID-19. And while I've taken liberties with a few words from this quintessential Aussie poem, Paterson lived through a number of world wars and depressions and certainly experienced another type of coronavirus referred to as the Spanish Flu. But life came back to ‘normal’ and the world kept turning… 

On 6 August 2020 (around 100 years on from the end of the 1920 pandemic), Peter (Switzer) and Paul (Rickard) fielded your questions in a style that you’ve become accustomed to. The redoubtable duo always do their best to give you their take on the current market and their best responses to your questions. 

Before taking questions from attendees, Peter and Paul looked at what’s happening generally in the markets. “People are trawling through tech stocks,” Peter said. “In our MicroCap conference held just before the Coronavirus hit, Recce Pharmaceuticals presented to our audience. It has a link to CSIRO and their pursuit for a treatment for coronavirus. Their share price was up 53% in a couple of days!” he added. 

“It’s no surprise that IT has done really well over the course of the year. Materials were up in July, that’s a function of the iron-ore price, and also the gold price. So that sector is now positive for the year. That's before BHP’s little run this week, which might surprise some people. Consumer staples like Woolworths and Coles, but also A2 Milk and a couple of other companies, are doing well,” Paul added. 

“And a lot of Australians who historically holiday overseas are sitting at home looking at ‘stuff’ they've tolerated a long time: old lounges, old TVs, walls without artwork. All those sorts of consumer discretionary spending items will do well over the next six months in particular. If, after six months, they start telling us we'll be flying to Europe and the US by the middle of next year, that might come off the boil. Otherwise it's going to be a very good Christmas for retailers,” 

Twelve months ago who would’ve thought retail would have done well? “It’s well acknowledged that there’s a lot of cash around now. And with consumers having to spend money domestically, we’ve had JB Hi-Fi, Harvey Norman, Nick Scali and Super Retail Group report well,” Paul said. 

Australians spent around $60 billion overseas last year. “Even if Australians only spent half of what they spend overseas here, that's $30 billion worth of retail. And by the way, retail was up 16% in May, 2.5% in June, and for the year it’s up 8.5%,” said Peter. 

“You and I have never reported numbers like retail up 8.5% in a year, Paul. So there's something strange going on, and it's Coronavirus linked,” said Peter. 

“Yes, it’s all Coronavirus linked, Peter. 

“Let’s go now to the questions asked by our subscribers,” Paul replied. 

Question 1: I’d like to top up on bank stocks, particularly ANZ & NAB, however, should I hold off until after the reporting season? 

The analysts think there’s 23% upside for ANZ and 19% for NAB. You're not going to get any great news on bank share prices in the next six months. But in the next year you will. So it depends on when you want to buy. 

There are a couple of positive facts for banks. Warren Buffet actually had a big investment in the Bank of America and every time there's really good news around, say on vaccines, which implies that a recovery is closer than expected, bank share prices go up. If you're a long-term player, maybe you'll have to wait a year or a year-and-a-half. Inside two years, the dividends will be restored to a reasonable level. 

Question 2: What’s your view on Macquarie Bank? 

That's a good question. Macquarie Bank got a little bit caught up in the foreign exchange play at the moment because about half their earnings now come from offshore. So, they have a bit of a headwind with the currency going up. Macquarie is a great company, but is it a buy as these levels? That’s the question. When it was in the $90 region, it was a really good buy. If a vaccine turns up and there's another leg up for the market, Macquarie will go up with it for sure but it might take two or three months to do something like that. 

Question 3: What’s your opinion on Resmed (RMD) following their annual report? Would you buy after the sell off? Do you think it will get to $30 as per analysts’ views? 

ResMed is priced at pretty big multiple and had a big run-up. The growth rate of 9% for the quarter and 13% for the year is OK. It’s just not doing enough. And their outlook statement isn’t particularly encouraging. It is a well-run business...not sure whether at $25.50 it's a screaming buy. Remember ResMed is primarily listed in the US and trades here on a one-for-ten basis effectively. If we were following the US price we'd be more likely around $24.50 so it's done better on the Australian market today (Friday 7 August) than you might have expected. It was sold down about 10% in the US last night. Think it's a stock to look to buy when conditions are right. 

Question 4: Where do you see the price of gold going? 

It's still going to sneak up and will keep sneaking up until a vaccine is close to being introduced into the USA. Look, if you're not in gold now, it's a much more risky time to get in than say, six months ago. Six months ago we said gold's probably an OK play. When things look scary, gold makes a lot of sense. But as soon as a vaccine comes, the gold price will fall. You have to work out how long that’s going to take and be in gold for that duration and try and get out at the right time. That's the tricky bit. While we did recommend the glittering metal about six months ago, we’re not fans of gold. Silver's doing well because high tech products heavily use silver. Rather than just being the poor relation to gold, it actually has a greater industrial use, with a lot of high tech ‘stuff’ that's being produced nowadays. It’s worth watching. 

Question 5: What’s your view on Bubs Australia (BUB) and how will it go between A2 Milk (A2M) & Bellamy’s (BAL) on a longer-term basis? 

Of course, Bellamy's is now delisted. BUBS is involved in goat milk. A2 Milk has the special protein. We don't know enough about whether goat milk or the A2 milk is better for you but we prefer (as a stock) A2 Milk. However, the analysts see it a bit differently. 

A2 Milk is priced to perfection. It's a great company and has continued to do well. At the Hearts & Minds Conference last year, Jun Bei Liu named it as the company she really wanted to be in. It's always done well. But the analysts think BUBS has more upsides, probably because it's not as well bought. BUBS has about 11% upside and there's a lot of merit in that. The fact that Bellamy's isn't listed anymore means that people are looking for companies that play in that space. And it's a space that's going to keep on doing well. 

Question 6: Tencent (TCEHY) now comprises about 8% of my portfolio. Should I reduce this? 

That's a big position in Tencent and you would have done pretty well, but it’s a big exposure to one stock. Taking a bit of profit wouldn't be a bad idea. It's a great company but could be a victim of the USA/China trade war. But you've done very well, without a doubt. 

Question 7: What’s your opinion on RBTZ (BetaShares Global Robotics & AI ETF)? 

Bit wary about the index because to buy an ETF like this you've really got to understand how the index is compiled and what you're getting. This is a thematic index. Looking at the BetaShares fact sheet, it’s not clear who puts the index together. It's not a naturally occurring index...it's a slave to the index, though it's done reasonably well. Do your homework on the index and just what goes into the composition of that index and be mindful of that. 

Question 8: Is Afterpay or Zip a better buy? 

While both rate well, we probably prefer Zip than Afterpay. Although Zip is sort of number two, so you always have to be a bit wary of that. Afterpay is hanging around $70 and Morgan Stanley has a $101 target, while UBS has it as $27! That's an enormous range. We interviewed Larry Diamond and Peter Gray of Zip when they were around the dollar mark and they're heading in the right direction. They're a good company but if Afterpay copped it, these guys would probably cop the backlash. It's always a bit wary about backing the number two versus the number one. Generally, markets teach you that the person who's the dominant player will do best. Sometimes the second player can win over time, but you're better off sticking with a leader. Afterpay's market cap is $20 billion, which is a lot bigger than most other companies on the ASX. 

Paul Rickard wrote about this a few weeks ago in his article, ‘The question on everyone’s lips: Zip or Afterpay?’ 

Question 9: What are your views of Insurance Australia Group’s (IAG) results? Is this a temporary downturn? 

It’s a bit of a disappointing stock. Obviously, there are things that have impacted on the IAG share price. The insurance margin has really crashed in the second half, that's to do with a whole lot of claims, bush fires, storms, a whole lot of damage. And secondly, their investment income has been sunk by the fall in the markets in March, April and May.  They have also been impacted by a blow out in credit spreads. It's very hard to get a feel whether they're actually doing a good job as a company. 

Buffet liked them, and he is their biggest re-insurer. He invested in the company. He likes insurance. He likes the cashflow. They are one company that will come back though the market may not be in a hurry to re-rate it. Dividends have been cut to zero and they've also warned about the capacity to frank, which isn't a positive. Analysts think there’s 18% upside. It's just going to take time for a company like this to rebound but one day it will. But insurers and airlines are very, very tricky investment commodities. 

Question 10: Can Flight Centre (FLT) see out the COVID-19 threat? 

More worried about Webjet and Corporate Travel. Flight Centre is stronger because of its retail scene and history. If you take a doomsday scenario that there’s no travel for 12 to 18 months, it's going to be tough for these companies. No amount of JobKeeper is going to keep some companies alive. John Guscic, CEO of Webjet, will be on the Switzer Investing programme after reporting and the first question will be: How long can you survive?

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 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.