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.
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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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.