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3 superstar ASX shares near all-time highs: Could they still be a buy?

The COVID-19 lockdown measures have resulted in a sharp decline in many S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) sectors. However, stimulus and changing consumer lifestyles have driven strong growth in many others.

This has allowed some high-quality businesses to remain resilient and even trade near or at a new all-time high. Could these 3 ASX shares within 5% of all-time highs be a buy today? 

1. The A2 Milk Company Ltd (ASX: A2M) 

The a2 Milk share price has gone from strength to strength, hitting a new all-time record high of $19.23 just 2 weeks ago. In a2 Milk’s recent trading update, it highlighted that its revenue for the 3 months to 31 March 2020 (Q3 FY20) was above expectations. This primarily reflected the impact of changes in consumer purchasing behaviour arising from the COVID-19 pandemic, including an increase in pantry stocking. 

The company anticipates FY20 revenue in the range of NZ$1,700 million to NZ$1,750 million (approximately 30-35% increase on FY19). It believes that full-year earnings before interest, tax, depreciation and amortisation (EBITDA) margin will now be higher than what it advised in February. Margin expansion will be driven by higher revenue from higher-margin nutritional products, favourable exchange rate movements and lower than expected costs for travel.

While a2 Milk is an excellent business, its current share price is far too extended in my view. So, I would personally wait for its share price to consolidate at these levels before entering. 

2. Megaport Ltd (ASX: MP1) 

There are many structural themes taking place as consumers are forced to stay home. Megaport is positioned front and centre as a cloud and connectivity play that provides its customers with the network connectivity they need, with global availability, right-sized bandwidth and on-demand consumption. 

At the beginning of April, the company completed a $50 million placement where proceeds raised will be used to accelerate sales, product development and platform expansion opportunities in the near and medium-term. 

The business is growing at a steady pace, with its March 2020 quarter update highlighting a 10% increase in revenue (quarter on quarter) as it continued to roll out enabled data centres (601, an increase of 49) and customers increased by 6%. At the end of March, the company had a healthy cash position of $108.7 million. While Megaport shares may fetch a hefty valuation, I believe its business faces more opportunities than challenges moving forward. 

3. AusNet Services Ltd (ASX: AST) 

AusNet Services operates the Victorian electricity transmission network, 1 of 5 electricity distribution networks and 1 of 3 gas distribution networks in Victoria. The business provides an inelastic service whereby demand does not typically fluctuate, even if economic circumstances were to change.

While its earnings are expected to remain relatively consistent, the business operates in a similar fashion to Transurban Group Ltd (ASX: TCL) in that it is heavily leveraged and dependent on debt. While debt is cheap to acquire in today’s low-interest climate, I personally find it quite deterring to enter more leveraged businesses. That said, the company is in a comfortable place while paying a generous 5.20% dividend yield. 

5 stocks under $5

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*Extreme Opportunities returns as of June 5th 2020

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of MEGAPORT FPO. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended MEGAPORT FPO. 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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