If you are looking to add some stocks to your portfolio, you might be interested to know what some of the world's most successful investors are buying.
Following in the footsteps of an investment legend like Warren Buffett is always tempting, and even though you cannot expect to replicate his success that way, it is interesting to tune in to what they are buying and selling.
Nobody is infallible and ultimately, you have to stand by your own decisions. Any stocks you actually buy need to sit alongside what you already hold.
So what are the professionals buying or holding today?
US billionaire Warren Buffett: Amazon
Market cap: $924.5 billion (Dh3.4tn)
PE ratio: 82.58
One-year return: 9.94 per cent
US retail giant Amazon is one of the biggest and best-known companies in the world, so it is fitting that the world's most famous investor Warren Buffett now holds it.
It took him time, though. His Berkshire Hathaway holding company only bought shares in this New York-listed e-commerce powerhouse in May last year, then added to its stake in August.
The move surprised many, given that Mr Buffett has historically avoided large technology bets, although he did buy Apple in 2017.
The so-called “sage of Omaha” distanced himself from that purchase, stating that “one of the fellows in the office that manage money” made the decision, although he is an admirer of Amazon founder Jeff Bezos, and previously says he wished he had bought the stock earlier, but failed to realise its full potential.
Vijay Valecha, chief investment officer at Century Financial in Dubai, says Amazon is already a global giant with a market cap of $924.5bn, and it could have much further to go. “It still accounts only for a minuscule 1.2 per cent of global retail sales and the potential for growth is humungous.”
Its Amazon Web Services arm is a leader in cloud computing, with annual revenue of around $36bn, and a massive $3.7 trillion to aim at.
One figure investors like to examine is a company's price/earnings ratio, which shows how much the share price costs in relation to its earnings. The current average for the US S&P 500 is 31.83, well above the long-term mean of 16.69, but Amazon is way more expensive at 82.58. Investors are clearly willing to pay a premium price. There is no dividend, Mr Buffett and others buy Amazon for growth.
Hedge fund manager Chase Coleman: Alibaba Group
Market cap: $618bn
PE ratio: 33.18
One-year return: 44.84 per cent
Charles Payson "Chase" Coleman III is an American billionaire hedge fund manager, and the founder of Tiger Global Management.
Mr Valecha says he is now betting big on Chinese technology giant Alibaba Group. “Alibaba has ambitious plans and is looking to serve more than one billion Chinese consumers per year with more than 10tn yuan ($5.35tn) of consumption.”
Alibaba is expected to post a 36 per cent rise in revenue in the current year, Mr Valecha adds: “On November 11, Singles Day Shopping Festival, it set a sales record of $38.4bn in 24 hours, which is more than the online spending on US Black Friday.”
The company also has a strong cloud computing business and is far ahead of its peers in terms of technology, he adds.
Canadian billionaire Prem Watsa: 5paisa Capital Limited
Market cap: $75bn
PE ratio: Not available this year
One-year return: 20.47 per cent
Prem Watsa is the Indo-Canadian billionaire founder, chairman, and chief executive of Fairfax Financial Holdings, based in Toronto.
He has been called the "Canadian Warren Buffett”, and has become successful through value investing, which involves picking stocks that appear to trade at less than their intrinsic worth.
Mr Valecha shares his bullish attitude to the Indian economy and stock market. “The country is a great way to ride the emerging market bandwagon with reduced risks as it is inherently a consumption-based economy and a safe haven from the global trade war," he says.
Structural reforms such as lowering corporate taxes and central bank easing should help Indian stocks climb, Mr Valecha adds.
He picks out one of Fairfax’s Indian holdings 5paisa Capital Limited, an online financial brokerage that allows customers to execute transactions at low brokerage fees, and has major potential. “5paisa Capital is basically India’s version of US-based commission-free broker Robinhood, with great growth prospects,” he says.
It didn't make a profit last year but revenue is growing strongly.
Star UK fund manager Nick Train: PZ Cussons
Market cap: $1.14bn
PE ratio: 32.03
Dividend: 4.14 per cent
One-year return: -1.48 per cent
Fund manager Nick Train is one of the top names in UK fund management, along with co-manager Michael Lindsell, following the success of their funds including Lindsell Train UK Equity.
Russ Mould, investment director at UK-based online platform AJ Bell, says Mr Train rarely makes adjustments to his portfolio, so when he does it is notable. “He has just acquired shares in healthcare and personal goods specialist PZ Cussons, a member of the UK’s mid-cap FTSE 250 index that is perhaps best known for Imperial Leather soap.”
This is only the fifth new stock he has bought for Lindsell Train UK Equity and Finsbury Growth & Income in the last nine years, and the first UK-listed one.
PZ Cussons looks an odd choice at first sight, Mr Mould says. “A number of profit warnings, thanks primarily to its African operations, leave the shares trading near 10-year lows.”
However, it has powerful brands, high returns on capital and a sound balance sheet. “Any return to former earnings glories would leave the shares looking cheap.”
The high dividend yield means that investors are being paid to wait and find out if the new strategy pays off, Mr Mould adds.
Star UK manager Michael Lindsell: Prada
Market cap: $9.24bn
PE ratio: 33.43
Dividend: 1.82 per cent
One-year return: 16.13 per cent
Michael Lindsell is the other half of the Lindsell/Train UK team, and Mr Mould highlights a rare recent stock purchase, Italian fashion giant Prada. “This is reportedly Lindsell Train Global Equity’s first new purchase in two years,” Mr Mould says.
They have spotted a buying opportunity, because its shares have fallen by two thirds from their 2013 all-time high.
Mr Mould says Prada’s e-commerce strategy lags its peers, while the shares were also hit by the slowing Chinese economy and unrest in Hong Kong, where the stock is listed. “Yet the luxury goods firm boasts strong brands, pricing power, high margins and lofty returns on capital employed,” he adds.
Mr Mould reckons Prada’s problems are fixable, and now could be a good time to buy. “It trades at a big discount to international luxury goods peers such as LVMH, Richemont and Gucci-owner Kering, and could prove good value if it can improve profitability," he says.
Fund manager Chris St John: Taylor Wimpey
Market cap: $8.95bn
PE ratio: 10.61 per cent
Dividend: 3.6 per cent
One-year return: 42.04 per cent
Danny Cox, chartered financial planner at UK advisory group Hargreaves Lansdown, picks out fund manager Chris St John as a proven stock picker for AXA WF Framlington UK, which specialises in medium-sized and higher-risk smaller companies.
His biggest holding is the FTSE 100 listed housebuilder Taylor Wimpey, which has benefited from years of steady property price growth in the UK.
The sector wobbled after the shock EU referendum result, but Prime Minister Boris Johnson's election victory in December has boosted UK economic sentiment, and Mr Cox says Taylor Wimpey should continue to do well.
“Britons are committed to home ownership and the country still faces a major housing shortage, which underpins demand," Mr Cox says. "Interest rates are still incredibly low by historical standards, so mortgages remain cheap.”
Taylor Wimpey has a strong balance sheet, with a £546 million (Dh2.6bn) cash pile, and plans to distribute £610m this year, mostly from special dividends, putting it on a forecast yield of 9.1 per cent.
As long as house prices are stable and the domestic economy holds up, Taylor Wimpey should thrive, Mr Cox adds. “Be warned, an economic upset could knock a substantial hole in its profits.”
European fund manager Nick Williams: DiaSorin Group
Market cap: $7.31bn
PE ratio: 39.79
Dividend: 0.77 per cent
One-year return: 46.84 per cent
Mr Cox picks out a leading fund manager specialising in European stocks, Nick Williams at Barings Europe Select Class I, up a thumping 97 per cent over five years.
Italian multinational biotechnology company DiaSorin Group, which provides equipment to laboratories, catches the eye, says Mr Cox. “It signs clients up to long-term contracts to buy compounds, which creates a flow of small, yet recurring revenue, which we like.”
Mr Cox says it has more than 100 tests, which generate a meaningful revenue stream of a few hundred million dollars. “While that’s a lot of money, it is not enough to warrant too much competition from the bigger players in the sector. DiaSorin also protects its technology and know-how from potential rivals.”
DiaSorin has research and development centres in Italy, Germany and the US, and a large cash pile, which should offer comfort during any downturn, Mr Cox adds.