Ask A Fund Manager
The ASX share for a comfortable night's sleep
The Motley Fool: If the market closed tomorrow for 4 years, which stock would you want to hold?
Kate Howitt: Let's shut it down for 10 years. That'd be WiseTech Global Ltd (ASX: WTC).
WiseTech is a software business, and software is very asset-light. So the economics can be brilliant. There's a lot of businesses out there that are software-ish, WiseTech is pure software. All they sell is software.
We spend a lot of time trying to understand things and it can help to have an analogy. I think the closest analogy for WiseTech is Bloomberg. It's the same thing, right? You've got logistics, and you've got finance. Both of them are global industries, both of them are incredibly data-driven, both of them have very disparate data sets.
Mike Bloomberg went around hoovering up all of the finance data sets around the globe to put them into one platform. And it's now pretty hard to operate in global finance without at least one Bloomberg terminal sitting in the corner. Richard White is doing a similar play for all of the data sets in global logistics. Equally very, very disparate.
But I actually think it goes a bit further than that. I think WiseTech is more like Bloomberg plus the LSE, plus the NYSE, plus the SGX — because [WiseTech] is also becoming the platform on which business gets conducted.
He [White] copped a lot of flack a couple of years ago for all the acquisitions, but what he's done is just kind of buy-in people and data. That means his lead is pretty much unassailable. It's hard to see how there could be a competitor to WiseTech that can build a kind of integrated data set and functionality that WiseTech now offers to its clients. And you can see that the largest logistics players are just kind of progressively adopting WiseTech.
Now, the caveat is it's on a triple-digit PE, right?
What I remind myself of this one is if you are at the dot-com peak — that frenzy back in '99 and early 2000 where the internet was changing the world — it turns out it was right. The internet was changing the world, but there were only a couple of companies that were the real winners out of that. So there were a lot of 'pets.com' that blew up. It all went to zero and everyone lost money. There were a couple like Microsoft Corporation (NASDAQ: MSFT), and Alphabet Inc (NASDAQ: GOOGL), and Amazon.com Inc (NASDAQ: AMZN), who were around then and who did go on to change the world. But for some of them, it was about 16 years until they regained those highs.
So with WiseTech, [what] if we had a big tech meltdown?
Tech valuations are a stretch, and partly that's driven by the low capital intensity of the business model, partly that's driven by low-interest rates and the discount factor that you're applying… But if sentiment reversed, interest rates went up, all of those valuations collapsed, who's the stock that in a decade's time, will have the earnings growth come through to eventually regain those highs? I think WiseTech is going to be one of those stocks, especially out of our market.
Tech has the risk of being disrupted. They come and then they disrupt others — Blackberry gets disrupted by the iPhone.
I think the really powerful ones are the tech companies that just get such broad network effects that they become unsellable and undisruptable. I think WiseTech has that kind of business model.
Totally I could see it going backwards for years and years if the valuation mindset changed, but the earnings power will eventually bring that one back.
But it's the kind of stock you should either only hold as much as you are prepared to not worry about for 10 years, or if you know you've got the stomach to not sell at a loss.
If you're saving up for something in a couple of years' time, or if you know that you tend to be a bit trigger-happy, then that's not a stock to own. Not now.
Read Kate Howitt's thoughts on getting more women involved in the finance world here.
