(Ed note: First published 31st Dec 2019): We all love quality businesses, but quality usually commands a premium and sometimes that premium is just too high. In the second of our annual Livewire Outlook Series videos, we brought together 9 fund managers to nominate one ASX or international stock they’ve each got on their watchlist and are ready to snap up at the right price.
Our featured experts include:
- David Allingham, Eley Griffiths Group
- Ben Clark, TMS Capital
- Rachel Cole, NAOS Asset Management
- Josh Clark, QVG Capital
- Nikki Thomas, Alphinity Investment Management
- Blake Henricks, Firetrail Investments
- Andrew Mitchell, Ophir Asset Management
- Vihari Ross, Magellan Asset Management
- Matthew Kidman, Centennial Asset Management
Watch the video by clicking the player or read an edited transcript below.
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Matthew Kidman: We all love a good bargain, but what are those stocks out there that we would buy if we could just get them at the right price? The experts have got plenty of them. There's always stocks we want to own at a lower price. How easy is that? But give us one that you think today I'd like to own at a lower price and be happy to hold for a long time.
Rachel Cole, NAOS
I really like Nanosonics (ASX:NAN). I think that's a great business. Very high quality. They have a consumable and a capital sales model. As their installed base grows, they grow the pool of annuity revenue that they get through their consumables. Their product is essentially a must have for the hospitals for infection prevention. There's no real substitutes. They've got a really strong market position and a great brand. The management team are very high quality. They've been guiding the market very well and living up to what they've been telling the market they're going to do. They've got no debt. They expense all their R&D and looking forward, they're growing their product suite. So I think this year they'll be announcing that new product.
CSL Limited (ASX:CSL)
Matthew Kidman, Centennial Asset Management
I think in the Australian example, what we've really learned is what can make you a lot of money investing in Australia is finding a company that's got a niche that doesn't seem too big domestically, but they own that niche globally. There's a number of those in Australia and they own it with themselves or one, maybe two others. So I think looking back and the obvious one that's now the second or third biggest company in Australia: CSL (ASX:CSL). It always looks 10 PE points too expensive. It always seems to deliver. It's got a very good niche in blood products around the world.
If I sat down with you and said, "Well, what's one business you want to get into?" Well, fractionating blood and making products out of it, you'd say, well, is that really a market? Well, it's a tremendous global market. They effectively own it with one other player. And I think if you could get it at that too, 25 to 30 times PE in a down market. I don't think it's impacted by economic growth. It's not cyclical and it's growth is probably there at that 8% 9%, 10% for the next decade.
Josh Clark, QVG Capital
You probably already know Altium's (ASX:ALU) a software business that designs software for engineers who design printed circuit boards. It's very unique in the fact that...
MK: And it's been a terrific performer.
It has and part of the reason for that has been its uniqueness. The current playbook with tech stocks is to take a bunch of money, burn it, hopefully I'm a bigger business in the future and then I can worry about profitability. Altium's grown revenue, and also profitability along the journey. I think that's product leadership that's gotten there and then you think about what Altium's got going looking forward. There's a tailwind in the industry with more electronic connected devices being produced, they could potentially do a deal with Dassault Systems, their European partner and they quite clearly articulate a compelling strategy to move more across the value chain in terms of what they provide and into the hardware space.
Vihari Ross, Magellan Asset Management Limited
Maybe an obvious answer, but Amazon (NAS:AMZN) is one that we'd love to own. Such a high quality business and an incredible business. They've got the eCommerce mega trend behind them. They've got the hyper scale cloud through Amazon Web Services sitting behind them, but ultimately at a very high multiple. They're dealing with extra capital investment in logistics in the US business, huge investment losses in the Indian business and potentially in Latin America as well. So it's just hard to find the value story there.
Blake Henricks, Firetrail Investments
Woolworths (ASX:WOW), they're executing the house down. It was our biggest position a year ago in the fund. And we've been slowly reducing it as the market caught onto the food inflation, a really rational, competitive dynamic, Woolworths execution. They're braining it - but it is on 26 times. So the upside probably isn't where it was before.
IDP Education (ASX:IEL)
Ben Clark, TMS Capital
IDP (ASX:IEL) would probably be the stock I'd choose. I think in a fairly short period of time the company has done an amazing job after being spun out of SEEK (ASX:SEK). The management team is excellent. The runway that they've got for growth is extremely impressive and they've executed really well to date. So there's no reason to think they can't keep achieving. However, it's trading on about 55 times current year earnings which is the sort of multiple we see for high tech stocks, SaaS stocks, so too expensive for now for me.
David Allingham, Eley Griffiths Group
The one that stands out for me is Nanosonics (ASX:NAN). Great business run by ex-Cochlear guys, really built up a great 50% penetration in the US market. They've got another product coming. But at $7 no matter what you do with your model, you can work hard at it but you cannot get there to $7. The analysts on the street have $2 or $3 in the valuation for incremental products they've got coming to market. That's telling you that everyone's trying to backfill the valuation but we can't get there. I would love to buy it at $5.
Chipotle Mexican Grill (NYSE:CMG)
Nikki Thomas, Alphinity Investment Management
You need a stock that's got positive earnings revisions. The market is under appreciating how good this story is. Chipotle is absolutely fits that bill. So, Chipotle Mexican Grill (NYSE:CMG), think Guzman and Gomez. If you're Australian and you like Mexican food, that's the business they've copied. It's firmly in an upgrade cycle, I just can't quite get to the multiples. So if I saw it cheaper, that is a great business I would love to own. Very well run. Really interesting story.
Andrew Mitchell, Ophir Asset Management
Realestate.com (ASX:REA) we bought it at $2 50, we sold it at $10, we were high-fiving each other and then it went to basically $100. So that's been a big mistake. Now it's truly...
MK: The early leavers missed the party.
We missed the big story. So look, this has now got the housing cycle behind it. It's got pricing leverage. It's a great business with a great market position, trading at 45 times PE with 15% growth, just a little bit pricey for us. However, if they do stumble, we'll be there hopefully to pick it up at a better price.
MK: And what's the stumble mean? 80 bucks, 75?
Well, something that puts it in a PE ratio to growth that's a little bit more attractive than where it is at the moment certainly.
Which stock would you love to own at a lower price?
We all have a wish list of stocks that we missed out on. What's the one stock you'd love to own at a lower price? Leave your thoughts in the comments section below this post.
Service Stream . Can't see why it won't keep climbing
XRO Still has a lot of blue sky, but it's one I'd like to get a little cheaper.
shh ! I havent finished accumulating Service Stream yet :)
Sydney Airport, Transurban are both businesses that appeal to me - I've owned and sold them both in the past. I'd be keen to own them both again but ideally at a lower price.
I think Nanosonics is a great business and have been following it for some time but cannot justify buying at the current price. I have a buy at $5 and below. Bill Surman
Macquarie, Mastercard and Microsoft are three businesses I'd love to pick up at lower prices.
JB HIFI - I have been it and out of it - Should have stayed in
Bought and sold APT too soon. Apt @ 24.00
Data 3 (DTL) Seems to be the technology related stock that’s flying below the radar. I’d love to have bought more when it was $2.50, but if it’s trajectory continues the way it has been over the past year, I reckon it will still seem well priced now when viewed 6 months from now.
CSL end of story!
Australian Stocks Pro Medicus Limited (ASX: PME) Service Stream Limited (ASX: SSM) Dicker Data (ASX: DDR) CSL (ASX: CSL) Xero (ASX: XRO) Macquarie Group (ASX: MQG) Appen (ASX: APX) Altium (ASX: ALU) Afterpay (ASX: APT) ASX (ASX: ASX) ...to name a few International Stocks The Trade Desk Spotify Apple Amazon Microsoft Google ...to name a few
Amcor set for big growth spurt
SOL and BKW would be nice but never seem to drop quite low enough to buy
transurban at $11
POLYNOVA (PNV) LOOKS GOOD FOR A RISE IN 2010
cda , a real quality business, on a pex of only 24 after doubling itself