Investors today are stuck between a rock and a hard place. Those seeking income are dealing with low and unpredictable yields, and those chasing growth are confronted with eye-popping valuations.

But amid the dual challenge of low income and high valuations for the likes of CSL, Cochlear and the WAAAX stocks, there are a selection of companies offering good growth prospects at a reasonable price.

In this episode of Buy Hold Sell, James Marley of Livewire Markets sits down with Natalie Tam of Aberdeen Standard Investments and Liam Donohue from Lennox Capital to talk through some of the opportunities they see.


You can also read a discussion with Liam and Natalaie on how to find growth in a low-growth world here.

Transcript

James Marlay: Welcome to Buy Hold Sell. My name's James Marlay and today we're talking about growth stocks and we're trying to find them at a reasonable price. I've got Liam Donohue from Lennox Capital and Natalie Tam from Aberdeen. Liam, let's start with you. Buy now, pay later. The second player really in the market, ZipCo. Buy, hold, or sell?

Liam Donohue: Yeah, ZIP's a buy for us. They're participating in a really exciting space in the buy now, pay later sector, extreme growth, taking share from incumbents, largely credit card operators, and probably less earnings and regulatory risk than some of the other players in the space so for us it's a buy.

James Marlay: Okay, Natalie, there is no doubt there's plenty of growth and plenty of excitement in the space. Buy, hold or sell?

Natalie Tam: It's a hold for us. I agree, the product's great. It has an excellent consumer proposition and the value that it brings to both consumers and merchants. It's out there, big target, addressable market, but for us, the regulatory risk is a bit of an overhang and we don't think that's fully priced in so it's a hold.

James Marlay: Okay. Staying with you, Megaport, software cloud computing, buy, hold or sell?

Natalie Tam: Megaport's a hold for us. Again, we love the story. I'd love to have it on as a buy, but the fact is, from a valuation point of view, it's just too expensive. It's trading on a one year forward EV to sales multiple of 20 times. That's high even for the tech sector so for us it's a hold.

James Marlay: Okay. There's plenty of growth. I had a look at the presentation before we came on. Your numbers look good. Buy, hold or sell?

Liam Donohue: Yeah, Megaport's a buy for us. As you mentioned, the network as a service space is a really exciting high growth market. Megaport are one of the leaders globally in that space so we are willing to pay a premium for that type of exposure. They haven't misstepped at all in terms of their execution in their four year listed life so we really like the story, like the management team. It's a buy.

James Marlay: Okay. Out of the exciting space of tech and and payments into automobiles, which is not super sexy. Bapcor, buy, hold or sell?

Liam Donohue: Bapcor's a hold. You're right, it's not super sexy, but it is defensive and there's a place for it. We probably would prefer to be buying it in the $5 to $6 range, when the market was extrapolating some pretty modest growth into perpetuity. We like the story. We like the defensive nature of earnings, but it's a hold.

James Marlay: Okay. Bapcor, people need to keep their cars on the road.

Natalie Tam: They do.

James Marlay: Buy, hold or sell?

Natalie Tam: For us, it's a buy predominantly because people do need to keep their cars on the road. You can't put off servicing your car or truck for an extended period of time and we also do see some upside coming from the potential for bolt on acquisitions and continuing to deliver for instance, their warehouse automation system. They've got a lot of self-help drivers within the business as well so for us it's a buy.

James Marlay: Okay. Now I've asked both of you to bring along a growth stock that you think looks reasonably priced. What have you got for us, Natalie?

Natalie Tam: We have Serko on a buy. Serko, if you haven't heard of it, it's an online corporate travel booking and expense system. It's just signed a deal with booking.com and booking.com has also taken about a 5% stake in the business, so that'll enable them to cross sell into booking.com's business travel customers as well as integrating booking.com more tightly into their software so we think there's a tremendous growth opportunity here and from a valuation point of view, it's trading on a 12 times EV to sales multiple for 25 to 35% top line growth, which we think is good value.

James Marlay: Can you do better than that, Liam?

Liam Donohue: I can match it. I don't know if I can do better, but we really like Clover Corp. They're an industrial business based down in Melbourne. They provide omega-3 oil in powder form to many of the largest infant formula manufacturers globally, including many Australian and New Zealand businesses. They have specific encapsulation technology, which means there's no fishy smell or taste associated with the product, which means they can charge a premium to many providers globally, and they're offering 30% earnings growth per annum over the medium term, which to us makes it really attractive so we think it's a strong buy.

James Marlay: Okay, well everyone will tell you that the market's really expensive, but our two guests have found a few stocks with growth at a reasonable price.

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Hit ‘follow’ below to get notifications of when Livewire publishes its exclusive Buy Hold Sell weekly video series. In each episode, two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies.Not recommendations, please read the disclaimer and seek advice where appropriate.