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Top ‘Firetrail’ fundie names 2 best share picks for 2019

One of Australia’s top rated fund managers in Patrick Hodgens of Firetrail funds management today named his top two ASX share picks for 2019.

Hodgens has a hot CV as a former fund manager at Macquarie Group Ltd’s (ASX: MQG) market-beating Macquarie High Conviction Fund and is now running his own Firetrail funds management group with a couple of former colleagues.

Firetrail is also a ‘high-conviction’ fund manager that’s interested in value and growth, although the fund has got off to a rocky start since inception in March 2018 by underperforming its benchmark S&P /ASX200 Accumulation Index by around 7.6%.

Eleven months is a short timeframe over which to judge investing returns though and Hodgens still views two ASX businesses the fund owns as being significantly undervalued to offer a great opportunity for investors today.

So let’s take a brief look at what Firetrail likes about these two stocks.

WorleyParsons Limited (ASX: WOR) is an engineering contractor focused in the resources and energy space that Firetrail believes is set to benefit from a big rebound in capex spending as the oil and gas investment cycle turns.

Hodgens is also a big fan of its CFO Tom Honan who used to head up finance at Computershare Limited (ASX: CPU) and Transurban Group (ASX: TCL).

The expectation is that Honan is set to pull out a lot more cost from the business than the market appreciates, with at least $300 million earmarked over the next 3 years.

On Firetrail’s estimates WorleyParsons is trading on just 13x fiscal 2020’s earnings, which should prove cheap assuming forecasts are met.

Nufarm Limited (ASX: NUF) is an agricultural chemical supplier also pegged as cheap being on just 7x EV/EBITDA today with a couple of growth levers to pull the market is not appreciating.

One is its move into the Omega 3 supply space, which is a vitamin required in aquaculture to feed fish. The soaring long-term demand for fish should translate into rising demand for Omega 3 with Nufarm one of the few companies able to meet this demand commercially.

Firetrail values Nufarm shares up to $10.20 (45% above today’s price) if the rising demand for Omega 3 plays out as expected.

It also believes recent merger activity within the agricultural chemical sector is set to lessen competition and help profit margins, while the stock may be a drought-driven cyclical low that presents even more value.

A couple of compelling investment cases then, but remember anyone interested in these stocks should only consider them as a small part of a balanced portfolio.

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Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has recommended and may own Computershare and Transurban  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.

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