Tesla, Coinbase, Square, Apple, Coca-Cola

Heath Behncke: Yeah, look for us, Ally, Tesla’s still a buy. We’re actually about to release a 130-page report on this, where we’ve actually gone through and talked about the transformation of energy. Which really, when you think about it, it’s probably one of the largest conversations, if not the largest conversation, on the planet. And they’re leading the charge. So, we think he’s going to continue to execute at scale as we’ve never seen before. So, we’re very optimistic, notwithstanding the rally it essentially had.

Coinbase Global (NASDAQ: COIN)

Ally Selby: Okay, next up we have Coinbase Global, which is a global cryptocurrency exchange. Heath, I’ll stay with you. Is it a buy, hold or sell?

Heath Behncke: Another one in our portfolio. So, this is a buy for us. So, Coinbase has really got the trust in the space around onboarding those who are particularly focused on Web 3.0 and crypto. So, we think there’s a big, bright future. The listing’s really helped with the public profile, and we’re going to probably see the first Google or Facebook of the internet of value. So, we think it’s a very exciting time.

Ally Selby: Michael, over to you. It has around 68 million users, and it recently reported around $2 billion in second-quarter revenue. Is it a buy, hold or sell for you?

Michael Frazis: This is definitely a buy for us. I mean, it’s one of the fastest-growing, cheapest companies in indices at the moment. And I think there’s a real advantage to the fact they’re the most trusted. If you’re setting up a fund, or you just want to make sure your crypto holdings are somewhere where they’re most secure, Coinbase has by far become the preferred counterparty. They’ll be the biggest and best, and they’ll be able to maintain that as well.

Square Inc (NYSE: SQ)

Ally Selby: Next up, we have a company that has recently made headlines down under. It’s Square. I’ll stay with you, Michael. Is it a buy, hold or sell?

Michael Frazis: Look, this is a sell for us. We’ve been long-term shareholders, but we have been reducing it. So, I have to stay aligned with what we’re actually doing in the market. And the reason for that is they’ve done a major acquisition. It’s dilutive on an EV-to-sales basis or EV-to-gross profit basis. Acquisitions of this size and scale are extremely difficult to execute. There’s a question mark over that. And I think over the coming quarters, it will become increasingly clear that this has been a very dilutive acquisition. So for those reasons, we are selling out our position just a little bit, but we will remain long-term shareholders.

Ally Selby: Heath, over to you. It has a market cap of around $119 billion and is currently trading on a forward PE of around 132 times. Is it a buy, hold or sell?

Heath Behncke: We’re Afterpay shareholders, and we’ve recently actually sold that position in the portfolio. And this for us is a hold. We’re doing the work at the moment. We share Michael’s concerns around the indigestion when it comes to a major acquisition like Afterpay. But we’re really doing a lot of work to understand what the integrated proposition could solve. It looks exciting, could happen, but we’ll just see. So for us, it’s a hold.


Ally Selby: Moving on to some of the Oracle of Omaha’s picks. First up, we have his biggest holding and one of the biggest companies in the world. Actually, I think it’s the biggest company in the world. It’s Apple. It has a whopping $2.4 trillion valuation, trading on a forward PE of around 26 times, though. Heath, staying on you, is it a buy, hold or sell?

Heath Behncke: This would be a hold for us. We think Apple’s a great company and got a great future. The transformation that’s going on to subscription-based service revenue is game-changing. You see that. But it’s big. It’s a very big company, and it needs some big game-changing things to actually help get those earnings going along. So for us, it’s a hold.

Ally Selby: Michael, over to you, I think Warren Buffett’s position in it is worth around $130 billion. Is it a buy, hold or sell for you?

Michael Frazis: For us, it’s probably a sell. And we were shareholders of Apple almost 10 years ago and held it for quite a long time. In the last three years, sales have basically been flat. Most of the price increase, and it has been a phenomenal price increase, has been multiple appreciation, going from seven times EBITDA, which was insanely cheap for the quality of the company, to 20 times. I don’t think that will happen again. And I think if you want the exposure to Apple, you’re probably better off just getting it through the NASDAQ 100.

Coca-Cola (NYSE: KO)

Ally Selby: Next up, we have one of the world’s most recognisable brands, it’s Coca-Cola. Michael, staying on you, is it a buy, hold or sell?

Michael Frazis: Look, our framework of true love and explosive growth would have been perfect for Coca-Cola many, many years ago. Now it’s clearly post-growth, it’s flat, it’s 20 times EBITDA. And also it’s got the headwind of people who don’t really want sugary drinks. And of course, they’re going to buy new things and launch new products and try and stay on-trend, but it’s clearly post-growth and there’s still risk in equities.

This company still dropped 35-40 per cent in March 2020. So if you’re going to take the equity risk, I think you need to be in faster-growing companies with high return opportunities. So sell.

Ally Selby: It actually underperformed the S&P 500 over the past 12 months. I think it returned around 8 per cent. Heath, over to you. Is it a buy, hold or sell?

Heath Behncke: Coca-Cola is a sell. It’s very typical of a lot of companies out there, ex-growth. Even looks like it has geared up the balance sheet pretty significantly over the last decade. If you look at EPS, it has gone nowhere. Dividend payout ratios have gone up very substantially, and then this is all in the face of changing consumer preferences.

So, it’s very indicative of an old-world company that, as Michael’s indicating, went through a very strong growth phase many years ago, but the game has really changed quite significantly in that way. It’s like a bond proxy. A lot of people actually look at it that way. We think that is even a risk, in that regard, in terms of sustainability around some of the dividends that they’re actually paying out.

Bank of America (NYSE: BAC)

Ally Selby: Last but not least, we have another of Buffett’s top bets. It’s Bank of America. Its share price has surprisingly risen around 80 per cent over the past 12 months. Heath, it’s the last one for you. Is it a buy, hold or sell?

Heath Behncke: Sell. Every bank in the world is a sell. As we saw here in March 2020, how the bank sector was down very markedly and the banks have got exceedingly large challenges going forward. It is clear that Buffett picked this up pretty cheaply. He bailed out the bank and in many ways and got a great deal. But it is a very difficult future ahead.

Ally Selby: As Heath mentioned it is likely to be a difficult future ahead for many of the banks of the world. Michael, over to you. Is it a buy, hold or sell?

Michael Frazis: For us, it is a sell. I was looking at its performance over the last 10 years. It’s been a strong performer, but I guess 10 years ago is 2011, so a couple of years after the GFC. So, it kind of makes sense. And if you look at what drove that, the price to book ratio went from 0.25 times to 1.25 times. So, it effectively went up five times and that was most of the return. Even though it has been a strong performer in the past, it is going to be very hard for them to continue to grow. If you’re going to take those significant equity risks, which you are in financials, then I think you need to be in higher returning opportunities.

Ally Selby: Well, it seems our fundies aren’t the biggest fans of Buffett’s major bets, but we’d love to know what you think.

Buy Hold Sell is a weekly video series produced by Livewire Markets.

Disclaimer: The information contained in this presentation is general in nature and should not be relied upon. Before making any investment of financial planning decisions, you should consult a licensed professional who can advise you whether the decision is appropriate for you. Contributors to this show may have commercial or financial interests in the companies mentioned.