Australian Ethical

Mark Williams, portfolio manager

While he’s all set for another year of uncertainty on the markets, Williams is putting his eggs in the “pathway downwards for interest rates” basket.

Specifically, potential growth in the healthcare and technology sectors.

“It will be interesting to see if that plays out or not and if it does, there’s potential for growth sectors of the market – which have seen challenging times in the last year or two – to outperform again,” he says.

“On the resources front, lithium is an interesting one – in the short term, the spot price very much dictates sentiment but we’re pretty confident about the long-term demand thematic around the lithium batteries,” he says.

With that in mind, he reckons these three stocks are trading at attractive lows.

Pilbara Minerals (ASX:PLS – $3.46, $10.43bn MC): The Williams approach to the lithium market? Focus on companies that are in production.

“It’s an important aspect to consider if you think about the type of cycle markets are in at the moment,” he says.

“Pilbara Minerals have been in production for a couple of years, and they’ve generated significant free cash flow, which means their balance sheet is strong as opposed to the likes of Liontown, for example, who are really struggling.

“When you’ve got lithium markets and spot prices failing dramatically, those that are either not quite in production or just getting to that point find themselves in a difficult situation,” he says.

Sitting with $2.1b on the balance sheet also gives PLS a lot of flexibility to manage this type of downturn, William adds.

“This is exactly what we saw in the last downturn in 2019 heading into early 2020 – just having that balance enabled them to get through and acquire the Altura business next door to them, which is now helping them build scale into the business,” he says.

ResMed (ASX:RMD – $29.10, $17.7bn MC): CPAP specialist at the larger end of town but popping up on a lot of traders’ radars after copping a brutal selldown last year in the wake of the weight-loss drug craze.

“The theory with obesity drugs is that if they are wildly successful and obesity levels drop broadly for the population, then there’ll be less sleep apnoea conditions in the market because sleep apnoea is quite often triggered by overweight or obesity,” Williams says.

“We’ve concluded that the impact was overstated and so we saw it as a good opportunity to get an exposure to it.”

Williams reckons there’s opportunity for a rebound as the market comes to appreciate that in the shorter term, these drugs aren’t having any impact on ResMed’s business.

Gentrack (ASX:GTK – $6.12, $630m MC): A $600m small cap utility billing software company providing processes for energy companies like Energy Australia.

“We really like this stock, we’ve been in Gentrack for a couple of years,” Williams says. “They’ve got a new management team that has shaken up the organisation and driven some pretty significant change through the business to the point where it’s now growing very strongly.”

Barry FitzGerald

Finally, the uranium price has taken a breather, settling back at $US100/lb from the recent peak of $US106/lb.

Was it all a bit overdone? We’ll find out again soon, because the world’s two biggest producers, Kazakhstan’s Kazatomprom and Canadian giant Cameco, are ready to update their 2024 guidance.

The pair control about 64% of global mine supply and if indications play out and production guidance comes in lower than expected, upward pressure could quickly return to the spot market.

Longtime uranium watcher Shaw and Partners says price increases do not appear to be driven by panic buying and has upgraded its uranium price forecast to peak pricing of $US150/lb in 2025/26/27.

If you’re looking to get in on the smaller market cap side of things, Garimpeiro’s got a couple of names.

Alligator (ASX:AGE – 0.075c, $289m MC) has its Samphire project in uranium friendly South Australia, where “quality and scale of the resource continues to grow”. It also has plenty of cash on hand to step things up in 2024.

It’s also recently put its foot valuable in-situ recovery (ISR) expertise by taking up a position in the unlisted EnviroCopper which has been working up two oxide copper ISR projects in SA.

And ASX-listed Canadian uranium exploration specialist 92 Energy (ASX:92E – 57c, $61m MC) was a 36c stock in December when it announced its involvement in a three-way merger with Canadian companies ATHA and Latitude, with ATHA taking charge of the enlarged group.

It’s now around 57c. Of interest to Garimpeiro is the ATHA scrip which has been performing well in response to the merger news. So much so that a big arbitrage has opened up between 92E’s share price and the imputed value of the ATHA scrip offer.
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