Buy Hold Sell: Are the moats around these 4 ASX stocks still holding? (Plus 2 the pros say are)

Anna Dadic: Hello, and welcome to Livewire's Buy, Hold, Sell. My name is Anna Dadic. In an environment of sticky inflation, market volatility, and AI disruption, an economic moat isn't just a nice-to-have, it's survival. So today we are looking at four businesses boasting consistently high returns on invested capital. And testing the fortresses today are Rudi Filapek-Vandyck from FN Arena and Henry Jennings from Marcus Today. Welcome, gentlemen.

Anna Dadic: Let's get into it with the first stock, and it's Data#3 - an IT services and software provider deeply embedded in corporate and government technology supply chains. Henry, I'll start with you. What's your take on Data3's moat? Buy, hold, or sell?

Henry Jennings: (SELL) Well, I guess from the mere description that you just gave, Anna, there's clearly a massive moat there because it is heavily embedded with government, with its IT, et cetera. And it's just provided a pretty optimistic update, to say the least, and the stock price has run very, very hard. My take, though, is that maybe it could be worth taking a few profits, just because the run has been pretty stunning in the last week or so. And really, what the company did allude to is the fact that the first half was so good, it's going to be kind of hard to replicate it in the second half. And they did warn that. They did talk about larger transactions for the period, increased activity - obviously everyone's into AI, so that's going to help them - and favourable timing they talked about as well from investment spend.

So it's had a good run. It's rerated. It's probably due for a period of consolidation here. If you owned it, I would certainly take some profits here and maybe see how it pans out, because it does look as if the company was trying to tell people, "This is great, but we can't rely on this in the second half as well." So just be a little bit cautious. For me, it's probably just take a few profits here.

Anna Dadic: Okay. So sell, for you. Rudi, how about you?

Rudi Filapek-Vandyck: (BUY) Well, in a different context, with a different company, I would say it's a triple AC, which means Avoid-At-All-Costs. But in this case, I'm going to say it's a long-term, basically buy on weakness. Share price pretty much has gone parabolic. Very good market update. But the quality of this company shows up more than just this year. I mean, if you take a longer-term view, I think the share price is at an all-time high. For a long-term investor, that's basically what you want in your portfolio. I'm personally a shareholder in Dicker Data. Both companies are treated by the share market almost as twins, while they're not the same - there is some overlap, but not really. But if you follow over the long term, the share price of both of them, it's almost like there's a peg race going on between the two. Now, I wouldn't at this point in time jump on Dicker Data either, because that too has performed well and it has just announced an acquisition, which is well received.

But I do think it all depends on what type of investor you are. And if you're only looking for short-term momentum, that momentum now has already kicked in the share price. If you're a longer-term investor like I am, and you like to keep your stocks for a while, then these are the ones you actually want to have in your portfolio, but not at all prices. So at this point in time, I would suggest you put it on your radar. And the share market being the share market, every stock at some stage has a little bit of weakness coming in. Well, maybe that's where people talk about opportunity.

 

Anna Dadic: We're moving on to stock number two. And Rudi, I'm going to stay with you. It's Technology One, an enterprise SaaS provider with near-zero customer churn. I suspect I already know your call on this. Buy, hold, or sell?

Rudi Filapek-Vandyck: (BUY) I don't think we have any secrets why I like this, but I do bring some news for people who are interested. As I said earlier, it's all about what type of investor you are. Now, this book came out this year [The Coffee Can Investor: A Stock-Picker's Journey to Build Generational Wealth, Neeraj Khemlani]. It's American, but this is the big surprise: this fund manager has scanned 58,000 stocks globally, selected one stock from Australia to put in your bottom drawer - it's Technology One.

I mean, it's about having the confidence that this stock will be a lot higher in 10 years' time. For those who are interested, you go back to 2004 to today. As I always point out, a company that grows by 15% a year consistently doubles in size every five years. If you're happy with that, of course, you don't buy at any price, but I would like to introduce a new term. I'm copying it from Nike, though, but I make it my own: it's "just own it." Don't worry about it too much; you just own it. Pick your level. I've done in the past, the same - I've done a similar thing with Soul Patts, for example. You just think, "I'm just going to take my level. If the share price goes lower, I'm not too worried. You might buy even more." And you just own it.

And after 10 years, you just smile.

Sounds good. Okay. Henry, what's your call on Technology One?

Henry Jennings: (HOLD) I wish I brought a prop. That's not a prop; that's a scaffold. It's amazing. 58,000 stocks analysed, and Technology One gets spat out the other end. Similar to Hitchhiker's Guide to the Galaxy, I guess, with the meaning of life being 42. I'm not sure I'm quite as bullish as Rudi is on Technology One. They did have a bit of a rerate lower earlier this year, and they've struggled ever since. Having said that, the whole Australian technology sector has been under a massive cloud - from WiseTech, Xero, even NextDC building data centres. So I'm not sure I've got the patience for a 10-year outlook. I understand the maths in terms of growth, but yeah, I'm not sure I've got the patience for that. It's probably a hold. I think it's too late to sell it, probably, but I wouldn't be going in boots and all at these kind of prices.

I think maybe we've still got some more shakeout to come in this sector because of the effects of AI.

Anna Dadic: Onto our next stock: Mader Group provides mechanical maintenance and repair services for heavy-duty equipment in the mining, energy, and industrial sectors. Henry, I will stay with you. Mader Group has built a moat around heavy equipment maintenance that obviously competitors struggle to replicate. What's your call on that?

Henry Jennings: (BUY) I quite like Mader Group, I must admit. I like the stock code as well - MAD. I mean, that says something. It's got a strong history of hitting their targets, which is good. They've got high-quality cash flow and a good balance sheet, and it's in the right sector, I guess, at the right time. And I know that there's pressures on the sector because of the diesel price, et cetera, which Rudi talked about in the last episode. So we are aware that things are a little bit tough out there, but I think Mader is well placed to continue to benefit from the mining sector boom, because at the end of the day, you look at commodities - copper is still very much in demand, we've got gold, we've got all the other critical metals out there. So I don't see a problem with Mader at the moment; certainly better than others in that sector.

Anna Dadic: Rudi, are you aligned with Henry on this one?

Rudi Filapek-Vandyck: Is there some kind of a special prize for double-buy or something? Do we ring a bell? Ring a bell.

We'll put that in as a sound effect.

Rudi Filapek-Vandyck: (BUY) In the previous episode, we spoke about Duratec, and one of my arguments in favour of not liking Duratec is that it's quite a small-sized company that has had some disappointments in the past. Mader Group is, I think, roughly three times the size of Duratec. So there's already a lot less risk, as far as I'm concerned. It's in the right sector. It has a lot of megatrends forward. Of course, the risks come through diesel and through labour force, but hey, very few stocks in the stock market have no risk attached. But I think again, also where the share price is, I think benefit of the doubt, right sector, it's a buy.

 

Anna Dadic: Onto our final stock we're going to run the ruler over: Fisher & Paykel Healthcare. Rudi, I'm going to stay with you. It holds a dominant position in hospital respiratory products. Is it a buy, hold, or sell for you?

Rudi Filapek-Vandyck: (BUY) It's a buy on weakness. And I'm not saying a sell because I think, similar to a Data#3 or a Technology One, these are the type of stocks you want to have if you're a long-term investor. I mean, they perform basically year in, year out. Ultimately, it's also one of the stocks, if you pay attention, that actually has reached an all-time high this year in a share market that has very few stocks really performing - that tells you something. Yes, it's trading at a premium valuation. That's because it has such a great growth trajectory ahead of it. And the market clearly is believing that, too. That's why it's trading where it is. Another element is - that's also not a secret - I'm a long-term shareholder in ResMed. Every time when people draw up a table of best performers over the last two to three decades on Wall Street, ResMed is always in there.

But here's the funny thing: this stock - well, there was some overlap with ResMed, but it's not quite the same - this stock is actually outperforming ResMed, both in the short term, the medium term, and the long term. So it's actually even better.

And I'm very sad here, because I did own it, and I thought it would suffer more post-COVID, and I no longer own it. But that's my suffering now. But anyway, at this point in time, I wouldn't chase it, but if you have a long-term portfolio and you want to have quality in there, this should definitely be on your radar.

Anna Dadic: Henry, that's Rudi's cross to bear. How do you feel about Fisher & Paykel?

Henry Jennings: (SELL) I think it's probably a sell up here, I've got to say. It has been a massively great performer, and I think some of that is defensive; some of that is the whole healthcare sector has had a big, big run. I mean, you look at CSL, which has doubled since the beginning of July. I'm certainly not as big a fan of ResMed as Rudi is. I've made my views pretty well known in the past; in terms of $38, $39, I had it as a big-time sell, and I changed my tune at $26 because there's always a price. But yeah, Fisher & Paykel have done extraordinarily well. Obviously, it's slightly different - it's not so much sleep apnoea, but hospital respirator systems, which has borne fruit for them, and they have well and truly outperformed ResMed, but they've just run too hard. 

Anna Dadic: We've just looked at moats across enterprise tech, mining services, and healthcare. But to close out the show, I'm handing over to our guests for their top conviction picks. Henry, I'll stay with you. What stock are you bringing to the table today?

Henry Jennings: Well, it's a little bit of a weird one in some respects. It's Meteoric Resources. MEI is the code, which is currently under takeover from Lynas. Now, the reason I like Meteoric - apart from being under takeover, but it is a scrip offer from Lynas. It does put you into Lynas at pretty cheap prices. So it's really a double play, if you like. Maybe someone else emerges as a predator and has another go at Meteoric, or the fact that you're buying Lynas at a discount to where the share price is at the moment. If you're really sophisticated, you could sell Lynas and buy Meteoric and try and capture that arbitrage. But generally, I think the rare earths sector has been bombed out, unloved, and this is kind of a "straw hats in winter" scenario. We're forever being told how critical rare earths are, and the US is pursuing rare earths, and the Chinese dominate, et cetera.

And just because Mr. Trump and Mr. Xi are playing nice at the moment and there's no bans or any sort of constrictions on rare earths doesn't mean to say that's not going to happen in the future. And Lynas at 12 bucks, $12.50 to me looks cheap, and Meteoric is the way I would play it. As I say, the two-pronged attack: you either get Lynas, or you could get another predator come along at 24, 25 cents. I think it's a good little punt at the moment.

 

Anna Dadic: Rudi, over to you for your pick.

Rudi Filapek-Vandyck: It's good to be with Henry on the show because he can deliver the weird ones; I can do the normal ones. Instead of straw hats in winter, I buy sunglasses in summer. The question I have for the viewers - and I hope they can instantaneously answer this - what do Soul Patts, Megaport and Codan have in common? All three of them successfully reinvented the business and became a better business out of it.  Now, I think at this point in time, Macquarie is doing that as well. 

We are obviously milking the fact that they have a lot of activity going on in the energy sector. I think this is not necessarily a buy, hold, or sell, but this is an alarm bell alerting people that there's something happening at Macquarie and it's positive. Now, if you look at the share price of the three companies I just mentioned, they've all done well. If this is successful execution, they will do well, and that's the message.

Henry Jennings: I just was going to add with Macquarie - I guess having been an alumnus of Macquarie and experienced a change in leadership when Tony Berg gave way to Allan Moss, we are seeing a change in leadership now with Greg Ward coming in in November, which is not that far away, and taking over from Shemara as CEO. So that Tony Berg to Allan Moss, and Allan Moss to Nicholas Moore, to Moore, to Shemara, to Greg Ward - that's interesting. They did harbinger big changes at Macquarie and a different focus. I know Greg's been there for a long time. He was there when I was there, and I was there three centuries ago when it was a tiny little bank. So there is that to consider as well - the new direction. And even though he is a dyed-in-the-wool Macquarie man, there's always that possibility things do change.

Anna Dadic: That's it for our episode on wide economic moats. Thanks to Rudi and Henry for joining us today, and thanks for watching Buy Hold Sell.