Elio D’Amato from Lincoln Indicators has revealed his annual ‘star stock’ ASX choices for the ASX Ltd (ASX: ASX) website. He said that whilst rising global interest rates, trade wars, Brexit and so on are reasons to be cautious, investors who remain focused on the quality and price of individual businesses should do well. Whilst no-one enjoys a market correction, he believes the one we saw last month was needed to keep valuations at a reasonable level. I have cherry-picked three of his star stock ideas that I agree with most for this article, although as Mr D’Amato warned,…
He said that whilst rising global interest rates, trade wars, Brexit and so on are reasons to be cautious, investors who remain focused on the quality and price of individual businesses should do well.
Whilst no-one enjoys a market correction, he believes the one we saw last month was needed to keep valuations at a reasonable level.
I have cherry-picked three of his star stock ideas that I agree with most for this article, although as Mr D’Amato warned, nobody can guarantee future performance and fundamentals can change quickly.
So, here are three shares that could be worth investigating:
Appen Ltd (ASX: APX)
From the numbers supplied in his article, there is forecast revenue growth of 68.1% and a forecast of earnings per share (EPS) growth of 54.9%.
The artificial intelligence and machine learning business has many large clients and demand for its services is likely to increase. Data becomes more and more important as these large tech businesses grow.
I agree with this pick – there are few shares on the ASX where you can get exposure to the growth of AI. Appen is trading at only 28x FY19’s estimated earnings.
Rural Funds Group (ASX: RFF)
Rural Funds Group is Australia’s largest agricultural real estate investment trust (REIT). Mr D’Amato’s numbers suggest that the distribution could grow by almost 5% and that Rural Funds has a forecast distribution yield of nearly 5%.
I also believe that Rural Funds is one of the best income shares on the ASX. The rental indexation built into its contracts should mean long-term income growth regardless of what the ASX or Australian economy is doing.
Altium Limited (ASX: ALU)
The developer and seller of printed circuit boards has an aim of being the global leader of the industry. It could be quite achievable is Altium can continue growing revenue and profit. Mr D’Amato’s figures suggest Altium will grow revenue by 26.6% and grow EPS by 34.9%.
I have been writing for a couple of years that Altium could be one of the best growth shares on the ASX. It remains to be seen if Altium can cement itself as a truly global leading business of its industry, but it’s operating in a very attractive sector.
It’s currently trading at 43x FY19’s estimated earnings.
As I wrote individually for each share, I believe all of them have a good chance of outperforming the market in 2019. If I can buy shares of Altium with a forward p/e ratio of under 39 or Rural Funds with a distribution yield of above 5% I’ll be happy to add additional shares to my portfolio.
However, at the moment they’re a bit too expensive for me. I’d rather go for good value growth stocks like this top ASX share which has smashed the market’s return over the past four years.
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Motley Fool contributor Tristan Harrison owns shares of Altium and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia owns shares of Altium and Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.