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MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.
Today we hear from Fairmont Equities managing director Michael Gable.
Gable has his eye on high growth stocks, which isn’t an industry as such, more stocks that are expected to grow at a rate above average in their sector, with high price-to-earnings (P/E) ratios.
“The reason for that is the market’s pricing in several rate rises in the US for this year, and I think you take a view of if the market’s wrong about that, what could benefit?” he said.
“If the Federal Reserve actually does more interest rate rises that’s bad for high growth stocks, but what if they come in under several rate rises that the market’s pricing in?”
Gable says he thinks there’s a real chance that the market might be wrong about what it’s pricing in.
“I think the side it will go on would be fewer interest rate rises than more, so that’ll benefit the high growth stocks that have been beaten down over the last few months.”
However, he did flag that, as interest rates rise, high PE stocks are less attractive.
Gable’s top pick is $15.5 billion market cap cloud accounting software company Xero, which has benefited from the recent tech rebound and has been up ~11% in the past month to $103.97.
The company say operating revenue grow 23% to $505.7 million in H1 FY22, with total subscribers increasing by 23% to 3 million. It said that was due to businesses around the world increasingly recognising the critical importance of digital tools to help them adapt to, and succeed in a changing operating environment.
“Xero looks very interesting, it shed a third of its value over the last six months and to me, it looks like it’s sort of basing out here,” Gable said.
“I think as the market starts to scale back those rate rise expectations, Xero could take off.”
In early March, the gaming company said that it does not anticipate a material impact on earnings as a result of the Russia-Ukraine crisis.
In fact, the company said it expects to see further growth in Pixel United bookings, with UA spend expected to be within the range of 26% and 29% of overall Pixel United revenues, pending timing and success of new game launches during the year.
Last year the $24.47 billion market cap company acquired UK-based Playtech, a sports betting software company for $4 billion, and this year, is looking to grow its online segment in North America.
“It’s another high PE high growth stock that’s actually come back quite a way and I’m looking to buy that over the next few days,” Gable said.
“I think that looks really good for a recovery.”
The other one that Gable said looks like a buy right now is $47.41 billion market cap medical supplies company ResMed, which specialises in sleep apnoea machines.
“That’s another high growth business, which has suffered, but I think that should recover pretty well over the course of the year,” he said.
The company took a heavy hit during COVID, with patients avoiding seeking treatment in hospitals during the height of infections, especially in the US.
However, ResMed did release a new CPAP machine late last year, which typically has a five-year replacement cycle.
And its biggest competitor – Philips – owns a division called Respironics which had to globally recall its rival CPAP machine.
In the second quarter 2022, the company reported that revenue had increased by 12% to $894.9 million – up 13% on a constant currency basis – backed by growth in its software-as-a-service business.
Gable said that in the big cap space he likes Mineral Resources (ASX:MIN), Pilbara Minerals (ASX:PLS),and Lynas (ASX:LYC).
“At the smaller end of the table, I’ve been trading Novonix (ASX:NVX), Liontown Resources (ASX:LTR),Lake Resources (ASX:LKE) – that’s already run a bit hard though,” he said.
“A lot of the lithium names look good.”
“And Mount Gibson Iron (ASX:MGX) looks like a screaming buy right now to be honest, that charts very bullish.
“I think that’s going to do pretty well from here.”
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
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