WorldWideMarkets Episode 688 — Transcript

Recorded: Tuesday afternoon, 28 July 2026 | Published: 29 July 2026 | Runtime: 21:17

Lightly edited for readability. Verbal fillers and repetitions removed; meaning unchanged.

Simon Brown (00:01)

Worldwide Markets this week: quality dividend stocks on the JSE, Alphabet results, Elon’s missed deadlines, and stocks on the move.

I’m Simon Brown. Hello, and welcome to Worldwide Markets episode 688 for 29 July. We recorded this mid-afternoon on Tuesday.

Worldwide Markets is powered by Standard Bank Global Markets Retail, and by Shyft, the global money app that puts travel, shopping, payments and investments in the palm of your hand. Enjoy the cheapest forex rates anytime, anywhere. Shyft, powered by Standard Bank. Thanks to Standard Bank. Thanks to Shyft.

Alphabet results (00:31)

Let’s start off quickly with some results out of Google — they came out last week, Wednesday I think. On the surface the numbers looked quite good. The headline number was the biggest profit in Alphabet’s history. Alphabet, sorry, not Google. And the stock was down 7%.

So, a couple of important points. Two-thirds of the profit was paper gains. They own about 6% of SpaceX. They’ve got a stake in Anthropic, and that was something like $98 billion of paper returns. GAAP forces unrealised gains on private stakes through the P&L these days. So it wasn’t actually profit — and that is a big chunk of it.

But some details into it. Search is doing just fine, up 17%. Cloud is doing astoundingly, 82% higher on a 35% margin — cash burner to profit in a year.

Capex is the big story: a $195 to $205 billion spend. They were talking about $185 to $195 billion. They’re pushing that higher.

But there is a circular story here. Google owns a stake in Anthropic and therefore funds Anthropic. Anthropic then buys Google Cloud, and that money flows back to Google. How organic is this growth? How circular is all of this? We’ve said this before: it is a very, very circular story, all of it. And this is not just Google — it’s everywhere.

Subscription platforms and devices up 15% — that’s your YouTube TV, your YouTube Premium, your Google One, et cetera. YouTube ads up 13% to $11.1 billion, and that’s a big number. But broadly, services was up 15% at $94.5 billion, and $63 billion of that is search and other. So search still remains the story. And all of the worries that AI would fundamentally cannibalise the business haven’t happened yet. They are still doing a ton of search.

But as I said, the important point was that massive increase in capex. Whilst revenue was up some $24 billion and net income was up huge numbers, it was distorted by those stakes that they hold, and that made it look a lot better perhaps than it really was. They were great numbers. They were great numbers — happy with that — but perhaps better than they really were.

The question is: is Google offering value? About a year ago, around July of last year, Google was trading on a PE lower than the S&P 500 average. It was about $160, $170, $180 a stock. I said this thing’s cheap. And it doubled subsequent to that. To be clear, I bought some. It doubled, it got to $400, and it’s now pulled back to $326. It could go a little lower, maybe down into the $300s.

We’re seeing a fair bit of sell-off coming through. We had the South Korean KOSPI on Monday night, Tuesday morning, down another 10%. That is absolutely hurting.

But the PE is 16 and change; the mean is 29, call it 30. It’s trading at almost half of that PE. Price-to-book is expensive at six and a half — it’s normally closer to six. I don’t think it’s expensive, but I think it can get a little bit cheaper.

The worry is that capex spend. And they’ve gone free cash flow negative — for the first time in the data I can find. That’s the biggie, right? Here’s Google, who as far back as ever has managed to generate strong cash flow. And they still do generate massive cash. They’re just spending it.

On price targets, the low end is $340, the stock is at $326, the average is $427 and the high is $515.

But that free cash flow — we can find it per share. If I go through all the data that I have, it hasn’t been negative before. And it’s negative by 48 cents a share. Now that’s not a massively significant number. The previous period it was 80 cents positive, and before that it was $2 positive. So it has swung.

And that swing, we’re seeing it everywhere, right? They raised some debt, they sold some equity. We’ve seen it from Meta. They are spending on that cloud infrastructure. The question is not “is there demand for it?” — by all accounts there is demand. The problem is: at what margin, at what profit? At the moment cloud grew 80-odd percent and the margin was 35-odd percent. Those are both giant, giant numbers.

And for now, I am liking Alphabet. I’m absolutely liking Alphabet. I think it’ll come down to perhaps as low as $300 or thereabouts, and at that point I think it’s looking very, very attractive from an investor’s perspective.

Power Hour: building an ETF portfolio (05:28)

We’ve got a Power Hour later in August — we’re not quite in August yet. It is the 12th of August, that’s a Wednesday, at 17:30. You can come live to the Standard Bank Rosebank head office, or you can join by webcast.

We’re looking at building an ETF portfolio. Where do you start? What’s your first ETF? Where do you go to expand and make it bigger? I’m going from one ETF to 10. How do you keep it clean? You get overlap. How do you check what you’ve actually got?

For example, I was buying ETFs late last year because I thought they looked interesting. And emerging markets has just been an AI trade, which has basically been South Korea and Taiwan. I’ve been holding TSMC, SK Hynix and the like — which is not the worst thing in the world, but not what I thought I was going to be getting.

JustOneLap.com/events for more information and booking.

Vodacom’s payout ratio and quality JSE dividends (06:31)

Vodacom announced that they would be cutting their dividend payout ratio from 75% to 65%. To be clear, that doesn’t mean they’re cutting the dividend — it’s the payout ratio. So if they make one rand of headline earnings per share, under the old ratio they would have paid 75 cents and then it gets taxed. Under the new ratio they pay 65 cents and then it gets taxed. In other words, they’re still paying dividends. And if the earnings go from say one rand to R1.20, it’ll all go up — although the first step won’t, because obviously they’ve dropped that ratio.

Vodacom has for some time been a stock you would potentially hold because you liked the dividend yield. It’s been a fairly good dividend payer — maybe not as great in recent years as it has been previously, but still a good chunky dividend payer.

So then the question is: okay, if it’s not to be Vodacom anymore, where do we get some quality dividends on the JSE?

A couple of weeks ago I did Finding Income Offshore — you can go to JustOneLap.com/power-hour to find that video. Today we’re looking at finding income locally.

So, this is my Top 40 list. If we start right at the top, we have Kumba at 14 and change. We have Exxaro at 9.2%. I am throwing out the miners, because they’re not quality, they’re cyclical. In other words, those yields can vanish in a minute.

We’ve then got Growthpoint at 8.8%. That’s a good yield, and you’re going to get some capital appreciation. Growthpoint’s biggest asset — or most important asset — is their 50% stake in the V&A Waterfront. And they are expanding it; they’re spending billions to expand into Granger Bay. I think the PIC owns the other half. Quality asset.

We’ve got Nedbank at eight and a half percent. Again, a good bank, and a bank that by many accounts is actually quite cheap. It’s been trading at a price-to-book of a little over one — 1.1 — which in the banking world is not a bad number. We’ve seen Absa at about the same point. But Standard Bank moves around two, FirstRand above two, Capitec a hundred miles above two — I think Capitec’s at seven or eight. Point being: nice bank, cheap.

Is either Nedbank or Growthpoint going to knock the lights out in terms of capital appreciation? No, not going to happen. Don’t get excited about that at all.

On the back of that we then have Mondi coming through. The problem with Mondi is the yield is high because the price has been collapsing, which means we don’t want Mondi — the market is expecting bad earnings coming through. We’re looking for quality.

We’ve got Investec at about seven and a half percent, Absa at 7.2%, Old Mutual at 7.1%. These are quality yields — mostly, in fact all of them, financials or REITs, but all of them quality.

Standard Bank is offering almost 6%. Now, it’s not just that you’re getting 6%. You’re also getting your Standard Bank, or whichever the case may be, and you’re going to get capital appreciation over time. You’re also going to get that dividend going up as the earnings grow. Say earnings growth of 10% — well, you can expect a 10% higher dividend.

We then get Valterra Platinum; Mr Price, where the price is falling; British American Tobacco at five and a half percent — and that’s a sterling yield, so it’s paid in pounds and converted into rand, so any currency weakness benefits you there. FirstRand comes in at 4.9%. Clicks is also under pressure. Not going to touch Vodacom, down at 4.2%.

Mid caps, small caps and income ETFs (10:31)

Now we’re down to Woolworths, Bidvest, Remgro. But there is a bunch of stocks there that are offering quality dividends, and they are quality companies. We don’t necessarily need Vodacom.

If we look at the mid caps — and I’m going to call this mid and small caps — we see a slightly different story, and the difference is around quality.

So Life Healthcare at 27% doesn’t count; there’s a special dividend in there. Italtile, no. Tiger Brands, no. Coronation, sure — Coronation looking good at 11%. Truworths, nope. Nedbank comes up. There’s Growthpoint again. Redefine, Old Mutual, AVI — not bad. Those are all paying you more than 7%.

And stocks like Italtile — nothing against them, but are they quality? You want that almost-guaranteed nature of it, which is the tricky part.

And then if we look at ETFs, there are some quality yields here too. For example, the Stanlib SA Bond fund. We’ve got Satrix Value, we’ve got the PortfolioMetrix Active Income, we’ve got the 10X yield bond. So these are all bonds — 10X Wealth GOVI, Satrix Namibian, Satrix SA Bond, Satrix GOVI, and so they go. And these are all looking at almost 7% or so.

Couple of points. Obviously these are all bonds. Remember, if you start seeing yields coming down that helps on the price, but it squeezes on the yield — and bonds are not certain; they can get quite wild.

And yes, there are some numbers up there which are in the nines and tens for the ETFs. But again, I come back to something as simple as: you can get a Growthpoint and a Nedbank and a Coronation, throw those three into a fund, add some flavour to it, put in some Standard Bank and one or two others. You’re probably sitting at around about a seven and a half to eight percent yield, and you’re going to get it growing ahead of inflation as capital appreciation.

But do be careful — of course all of that is going to get taxed. They are dividends: 20% dividend tax. So it is going to cost you in that regard. But there is, frankly, a lot there and a lot that we can get out of it. And I think that’s hugely important.

Elon’s missed deadlines and Tesla’s valuation (12:56)

I want to touch on a video circling — I’ve seen it mostly on Twitter; it’s probably on other social media, I imagine. It’s not a new video in terms of what we’re seeing. We’ve heard the story before, and it is important, but it’s become more important now because there’s a lot more happening.

It is basically 10 years of Elon Musk saying we will have Tesla self-driving cars by next year. Ten years of him saying “next year we’ve got self-driving cars.” What we do kind of have from Tesla now in 2026 is some self-driving cars. It’s taken a very, very long time to get here.

But the problem, as I said in the tweet that I put out, is it’s one of two things. Either Elon Musk does not know what is happening back at head office or the factory — and I’m not sure I can believe that, he must have some sense. So then the second option is that he is willing and happy to lie. The point is, neither of those is good for the CEO of a company that one might own, be it Tesla or be it SpaceX.

He’s also talked around the Optimus robots. There were supposed to be 50,000 of them delivered this year. There are zero being delivered, and they’ve just kind of forgotten about them. They’re just no longer seemingly important by any stretch of the imagination. The Optimus robots are totally gone. It is surely a problem.

Now, some people on Twitter have said to me: no, but you need a strong leader who can talk and see the vision. As others have said, you need to talk it into existence. Okay — but how do you, as an investor, make investment decisions when the most important person in the company, i.e. the CEO, is making stuff up on the go? And I’m being polite there. To be clear, he’s lying. Whether he’s lying intentionally or not doesn’t matter. How do you make that decision?

Because what you then get is a Tesla which is chronically overvalued. Tesla, say what you will, makes cars. Sure, we could also argue that it’s a robotics company and it’s going to have all the other bits and pieces — the self-driving and everything else. Yes, sure, maybe. But it makes cars.

And what we saw with Tesla results this time was revenue exploding — well, not exploding, up some 30-odd percent — but profits flat. Why? Margin compression. The Teslas, and ignore the Cybertruck, are getting to the point where they operate at margins which you see on normal cars out of Ford or BYD or General Motors or BMW or Honda or whoever it might be. Which means the current valuation the company is running at is really, really hard to justify. And when I say really, really hard, I am in many ways being quite polite.

The forward PE is 162, which is actually about the average — 164 is the average forward PE. Price-to-book is 14 times. This is a company that manufactures motor vehicles. It has been priced as a tech company. And it has some tech: it has Optimus robots — I don’t know where they are in terms of actually being delivered — and it has some self-driving. But in terms of what Waymo is doing, it is a thousand miles behind in the self-driving game.

And don’t get me wrong: Teslas are great cars. EVs are the future of motor vehicles. I do think Tesla need to revamp their range; some of their cars are maybe looking a little bit old — but that happens and that’s easy enough to do.

We’ve got a stock trading at $309, the average price target is $400, the highest $600, the low $125. Two strong sells, four sells, 17 holds, 17 buys, six strong buys.

I just think that we have to ask some very serious questions about Elon if you’re going to be investing in his companies. Maybe you invest in SpaceX or in Tesla and your argument is simple: I’m just investing in Elon. That’s my story. It’s kind of like if you invest in Discovery in South Africa, right? No one really understands those numbers — you’re just investing in Adrian Gore. And you’re like, I love what Adrian Gore does, I’m on for the ride. In this case, you’re investing with Elon. And at some point in the next couple of years, SpaceX will buy out Tesla.

So if you’re just investing in Elon, that’s fine. Accept what you’re doing here and say it’s just an Elon story. I’m saying be careful, because it just doesn’t add up. And for me personally, I don’t like it.

They will tell you that Tesla has millions of miles of data on the cars, and I don’t dispute that. But so does Waymo — that’s not a massive edge. I want to say Tesla is late to the self-driving party, because I think self-driving autonomous vehicles are still quite new as a concept. But I do want to say that they weren’t early to this party. There’s been a lot happening already.

Stocks on the move (18:48)

A quick bit on stocks on the move. What is looking bullish? What is not looking bullish? There are a couple here — not as many as perhaps often.

The one looking bullish is Bid Corp. That is not new; we’ve had this one on our list for a while now. Bid Corp results are coming out in about a month. It’s moving and it’s at 52-week highs.

But the ones on the downside remain Clicks. Clicks just continues to get cheaper and cheaper. It’s now trading lower than it was three years ago — it’s trading at 2023 levels. Clicks always had the support of foreigners. They seem to have left, and that is hurting the stock. It has always been a high-20s, 30-times PE. That is no longer the case. I don’t think it necessarily goes back to that.

But what I do think — and to be clear, I’ve said it before, and to be clear, I’ve been buying Clicks, and to be abundantly clear, so far, so wrong — it is a stock that I particularly like and I think there is some potential here. At this point in time it is trading at the low range; the average price target is R327. Unless you are firing on every cylinder invented, you’re getting your price hammered. That’s just how it is these days.

And then Absa — I mentioned Absa earlier when we were looking at potential dividend stocks, and Absa is certainly one of them, and it is a cheap bank. It has rallied quite nicely. It’s running, it’s at highs for the year. Nothing about that chart is particularly thrilling to me. But if you’re liking yield, Absa is your friend in terms of finding yourself some decent yield from SA.

Close (20:47)

Worldwide Markets is powered by Standard Bank Global Markets Retail and by Shyft, the global money app that puts travel, shopping, payments and investments in the palm of your hand. Enjoy the cheapest forex rates anytime, anywhere. Shyft, powered by Standard Bank. Thanks to Shyft. Thanks to Standard Bank.

Remember that Power Hour, 12 August — JustOneLap.com/events for more information.

Until next week, my name is Simon. As always, look after yourself, and if you can, look after somebody else as well. Cheers all.