Twenty-One of the Best: Tim Boreham’s Hot Stocks for 2022
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Having gained around 10% in calendar 2021, will Australian stocks keep batting away or fold like England’s top order?
With the coronavirus continuing to serve up the epidemiological equivalent of an underarm delivery, investors risk being clean bowled by a bear market.
To date, the global economy has exceeded expectations but it’s still a moot point as to whether we will succumb to the ill-effects of the western world’s astonishing debt splurge.
In short, now’s the time for an ultra-cautious approach to stock selection rather than whacking them over the boundary, Big Bash style.
But where’s the fun in that?
Beyond the overhyped tech stocks and the tired by now pay later sector, there are still bargains to be found – either battered big caps or overlooked tiddlers.
Below are 21 more sure-fire* suggestions for 2022, plus some passive ETFs for investors who can’t be bothered getting out of the hammock.
Of your writer’s 19 hot stocks last year, excluding 2 passive ETFs, eleven of them soared by an average 94%.
The gains included four triple digit dazzlers: battery play Neometals (ASX:NMT) – up 370%; mining services house Mader Group (ASX:MAD) – up 136%; blood-based bowel cancer assay developer Rhythm Biosciences (ASX:RHY) – up 113%; and investment platform Praemium (ASX:PPS), up 116%.
The eight losers gently deflated by an average 31 per cent.
Can’t win ‘em all.
*They are guaranteed to be stock tips, not necessarily successful ones.
With a ubiquitous line of personal care brands at the value end, McPherson’s (ASX:MCP) should be a thing of beauty, but the shares have lost almost one-third of their value over the year.
The company’s portfolio also includes Dr LeWinn, Manicare, Lady Jayne and Swisspers, as well as kitchen products such as Multix aluminium foil and cling wrap. With everyone festering at home, sales have been robust.
Management has forecast lower first (December) earnings, but in earnings before interest and tax (ebit) terms the full year should be $1-2 million higher.
In November last year McPherson’s acquired alternative medicine outfit Global Therapeutics for $27.5 million.
McPherson’s balance sheet is in fine fettle, which supports a generous dividend payout equating to a circa 5.3 per cent yield, fully franked.
The shares have lost half their value over the last year, but all will be forgiven if management hits its target of $300 million of annual sales and $50m of ebit by 2026.
Accounting software house Reckon (ASX:RKN) has been overshadowed by the likes of MYOB and Xero but its bookkeeping products are still widely used by small businesses.
Reckon also provides practice management and compliance software to eight of the top ten account firms locally and five of the top legal firms globally.
Reckon edged up revenue to $38 million in the half year to June 2021, with net profit climbing 18 per cent to $5m. The company also dispensed three cents a share interim dividend, fully franked.
Reckon’s $120m market valuation pales in comparison to that of the $22 billion ‘cloud’ accounting pioneer Xero.
With ambitious fintech Novatti (ASX:NOV) sitting on Reckon’s register with a 19.9 per cent stake we wonder whether the lowly valuation will add up for too much longer.
Adherents to the dictum of “where there’s muck there’s money” haven’t paid much attention to cleaning and security contractor Millennium Services Group (ASX:MIL), which has lost 70 per cent of its value since listing in November 2015.
That said, Millennium has tidied up its act and is now solidly profitable.
Millennium derives most of its revenue from shopping mall cleaning contracts, but is expanding into other sectors including aviation, healthcare, education and governments.
Independent analyst Research as a Service (RaaS) says Millennium shares would be worth $1.20 – around double their current value – if they traded in line with the company’s peers.
The leading provider of adventure activities, Experience Co (ASX:EXP) is well positioned for the domestic tourism recovery which is now well underway.
Best known for wet-your-pants stuff such as tandem skydiving, Experience recently acquired Trees Australia. Trees Australia is the biggest provider of ziplining and rope courses, with 14 sites in five states.
The purchase – along with that of Tassie’s Maria Island walk – was funded by a well-supported $55m capital raising.
Formerly known as Sealink, Kelsian Group (ASX:KLS) was founded on the Kangaroo Island ferry hop and Capitan Cook Cruises, but more recently has expanded into commuter ferry and bus operations.
In fact, in the 2020-21 year the bus routes accounted for 82 per cent of the company’s record revenue of $1.17 billion, with marine and tourism accounting for the rest.
Bus routes are good business because they are underpinned by long term government contracts. Kelsian this month dipped out on winning a contract to run buses in Eastern Sydney, but other prospects beckon.
Rare earths play RareX (ASX:REE) plods on with a lowly $45 million market capitalisation, despite recent exploration breakthroughs at its Cummins Range prospects in WA’s Kimberley region.
The company has also been open about its business development ambitions – another way of saying it could have a game-changing acquisition in mind.
Bear in mind that the valuation of rare earths big daddy Lynas Corporation has more than doubled this year, as the world continues to fret about China’s grip on the rare earths market.
Further up the evolutionary tree, the $830 million market cap Firefinch (ASX:FFX) offers a two-pronged exposure to lithium and gold, via its Goulamina and Morila projects, both in Mali.
Morila ‘the gorilla’ was a big gold producer under Randgold (now part of Barrick), with Firefinch picking up the mothballed operation for a song.
The plan is to grow production from a restarted operation to 200,000 ounces of gold in 2024. That alone covers much of the group’s market cap.
Goulamina is a joint venture with China’s Ganfeng, the world’s biggest lithium chemicals producer.
Goulamina is being planned as a top three spodumene (hard rock lithium) producer behind the WA operations of Greenbushes and the now $8 billion market cap Pilbara Minerals.
In early 2022 Firefinch plans to spin off its 50 per cent per cent Goulamina interest to shareholders in an in-specie distribution of shares in a new company, Leo Lithium, but keeping 20 per cent of Leo itself.
Watch out for positioning in Firefinch ahead of the Leo spin-off.
Kaiser Reef (ASX:KAU) initially focused on gold and copper exploration in NSW’s Lachlan Fold Belt.
But it has since added a high-grade Victorian leg to its story gold by picking up two historic projects – the A1 mine near Jamieson and the Maldon project.
Small scale production from the A1 is underway, with the ore being treat at a treatment plant at Maldon.
The drilling at Maldon’s Nuggety Mine reef is looking for extensions to reefs at the aptly named prospect, which historically produced 301,000 ounces at an amazing 187 grams per tonne of recovered gold.
Meanwhile, Kaiser Reef is worth a less-than chunky $22 million.
From gold nuggets to chicken nuggets: we all must eat and the post-pandemic economic recovery has spurred fertiliser prices to five-year highs.
BHP (ASX:BHP) is fully aware of the need to feed the world with less arable land, having given the go-ahead for its $US10 billion Jansen potash project in Canada.
But leverage to the thematic is greatest with companies that have potash as their sole focus, such as South Hartz Potash (ASX:SHP) and its Ohmgebirge project in Germany.
The Hartz region has been synonymous with potash for more than 100 years, with South Hartz managing to secure a big footprint in the region.
Hartz Potash has just raised $5.3 million to drill some confirming holes at Ohmgebirge which will lead into a scoping study.
The scale of the project is likely to catch the market by surprise and focus attention on the company’s $66 million market cap.
Despite frequent predictions of the demise of the banks in the wake of nimble fintechs, the Big Four account for more than 80 per cent of the market and that share hasn’t budged for years.
But the valuations of the big banks hardly look compelling and there arguably are juicier prospects at the junior end.
At a time when urban mainlanders are flocking to Tasmania to start boutique gin distilleries, the Hobart based MyState (ASX:MYS) is benefiting from the ensuing housing boom.
The bank reported record September quarter loan growth, with mortgages up 115 per cent year on year and 4.7 per cent for the quarter.
The smaller banks have a higher cost of funding, but they are not saddled with the legacy mainframe-based IT systems. Even the denizens of the Apple Isle know that Apple Pay is not an orchardist’s bartering system.
MyState is trading on a price-earnings multiple of 12 times – below the odds for the banking sector – and a yield of 5 per cent. Yet the shares have marked time over the last 12 months.
Is there a better time to be a person on the land?
Federal agency ABARE is forecasting a record winter crop on the back of the ideal Spring conditions, while prices are buoyant the Aussie dollar is heading the right way (down).
Agri stocks such as Elders have moved already and arguably look toppish.
But shares in Australian Agricultural Co (ASX:AAC) did nothing in 2021, despite record beef prices and September half profit turnaround to $83m from a previous $1.7m loss. The stock is trading at a 20 per cent discount to net asset value.
One counter-intuitive play is Duxton Water (ASX:D20), which owns and trades water rights. Given the soggy conditions the valuation of temporary rights has plunged, but it is not so much the case with the permanent rights to which the annual temporary allocations are attached.
And Hanrahan was right: the next drought is always around the corner.
The old Queensland Rail, Aurizon (ASX:AZJ) is out of vogue because much of its business is about carting coal – aka the devil’s work.
The company’s acquisition of One Rail was also poorly received
For instance, broker Citi politely opines that Aurizon’s incremental earnings uplift from One Rail will be more than offset by lower near term free cash flow and increased debt.
Still the firm forecasts 13 per cent total return and an 8 percent dividend, so we’ll hitch a ride on that premise.
Speaking of transport, car buyers would be lucky to get hold of a jalopy at the same price of a year ago such is the strength of the supply constrained market.
But they can pick up a swag of shares in parts group Bapcor (ASX:BAP) at 2020 prices – drive away, no more to pay!
The fast-moving Burson has encountered a roadblock with the unexpected resignation of its CEO, Darryl Abotomy
Given the highly respected Abotomy just signed a new contract, the investor angst is understandable. One person rarely maketh a company, even though Hamish Douglass’s Magellan is testing that contention.
An exception to the rule that COVID has been a blessing for healthcare stocks, private hospital operator, Ramsay Heath (ASX:RHC) has lost about 15 per cent of its value since the onset of the plague.
One reason is the disruption to elective procedures caused by the endless lockdowns, not just here in but in France and the UK where the company also operates.
In theory, Ramsay’s fortunes should improve as lockdowns again become the sole preserve of prison riots, tense sieges and bomb threats.
Ramsay has also just paid $1.4 billion Elysium Healthcare which provides secure mental health hospitals in the UK. If mental care isn’t a red-hot growth sector, we don’t know what it.
The listed real estate investments trusts (REITs) lucky enough to own a shed or two have boomed, amid extraordinary demand from logistics and e-commerce operators.
Among the retail REITs supermarket landlords have been fine, but the discretionary sector is more mixed than a Fosseys bargain bin.
There’s a case for punting on the Great Shopping Recovery via Chadstone half owner Vicinity Centres or the global Unibail-Rodamco-Westfield (formerly Westfield).
Arguably there’s more value and safety in the specialist REITs, such as service station landlord Waypoint REIT (ASX:WPR).
With its tenancies anchored by Shell and Liberty servos, Waypoint benefits from the domestic motoring boom via safe, long-term leases.
Elsewhere, National Storage REIT (ASX:NSR) has upped current-year earnings guidance by 10 per cent. During the pandemic cooped up householders realised their cosy abodes were simply too cramped and that has resulted in ongoing elevated demand for self-storage.
It was another booming year for biotech, exemplified by the 350% increase in the value of pre-revenue cancer drug Imugene (ASX:IMU), which now bears a $2.8 billion market cap.
With such elevated valuations, investors need to consider the whole gamut of drugs, devices and diagnostics.
An exponent of the trendy area of ‘theranostics’, nuclear medicine play Clarity Pharmaceuticals (ASX:CU6) listed on August 25 with high expectations, but its shares have halved.
We attribute that disappointment to an overly ambitious valuation, rather than any flaws in its underlying program to develop more effective cancer diagnosis and therapies based on two copper isotopes.
Radiopharm Theranostics (ASX:RAD) then had a similar experience, with the shares losing more than one-third of their value since their November 25 debut.
Radiopharm was assembled by serial biotech entrepreneur Paul Hopper, who attracts deep-pocketed investors like a moth to a Bunsen burner.
Hopefully both stocks can emulate the fortunes of the $2.2 billion market cap Telix Pharmaceuticals, which is at the pointy end of developing imaging or therapeutics for prostate, brain and kidney cancers.
Under the guidance of former Medical Development chief John Sharman, Universal Biosensors (ASX:UBI) is pursuing a more commercial approach to developing its single-use test strips.
Initially used for blood sugar testing, the strips have evolved as a one-stop assay for winemakers to check the contents of their vats and bottles.
UBI also has an established strip for coagulation and is pursuing environmental and fertility testing applications, as well as testing for cancer biomarkers.
The company has a $x150 million market capitalization, $20 million of cash and no debt. Crucially, its building revenue.
With a mere $20 million market worth, specialist contact lens maker Visioneering Technologies (ASX:VTI) has had a tough time during the pandemic but expects to chalk up $10 million of revenue in the calendar 2021.
Based in Atlanta Georgia, Visioneering develops and sells single use lenses for both myopia (short sightedness) and presbyopia (age-related far sightedness).
Exchange traded funds remain popular with lazy investors – so to speak – as a low cost, passive way to follow a particular index of commodity. This is at a time when high-cost active fund managers are routinely embarrassed about stock-picking prowess.
While they have their disadvantages, ETFs are also a convenient way to gain a diversified exposure to burgeoning new sectors.
Going by the electrifying ASX ticker ACDC, the ETF Securities Battery Tech & Lithium ETF (ASX:ACDC) offers a global basket of stocks exposed to battery technology and lithium mining.
The fund adopts an ‘equal weighting’ strategy, which means that the portfolio isn’t skewed to the bigger companies in the same way a pure index fund would be. The portfolio includes home-grown lithium miner Pilbara Minerals and aerospace giant Lockheed Martin.
The Betashares Australian Sustainability Leaders ETF (ASX: FAIR) cuts out the drudge work of reading those ever lengthening – and increasingly meaningless – ESG disclosures.
For exclusion in the underlying portfolio, companies need to derive at least 20 per cent of their revenue from activities such as renewables, recycling or healthy foods.
The author is not a licensed financial adviser and the contents of this article should not be construed as financial advice. Readers should consult their own tea leaves or seek professional counsel.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.