There are some ASX shares that have growth potential and are rated as buys, according to top fund management outfit, Wilson Asset Management (WAM).
One of the key strategies of WAM is to identify undervalued growth companies where there’s a catalyst that could increase the valuation.
Livewire’s James Marlay recently spoke with lead WAM portfolio manager Oscar Oberg as well as portfolio manager Tobias Yao.
In WAM’s opinion, this is one of the best environments for small caps that the investment team have seen for some time because of the reopening of the economy and the fact that there’s plenty of ASX shares that are exposed to this.
There are a number of ASX shares that the two WAM managers named as businesses that they liked at the moment including United Malt Group Ltd (ASX: UMG), Ramsay Health Care Limited (ASX: RHC). The WAM managers also said they have been adding to some existing positions like BWX Ltd (ASX: BWX) and Infomedia Limited (ASX: IFM).
WAM is bullish about the agriculture sector
One sector that Mr Osberg was particularly positive about the prospects of was agriculture. The drought has been hard for many farmers across the country. But WAM is bullish because of the rain that has fallen on the east coast of Australia.
He pointed to the fact that the government is forecasting 24.3 million tonnes of crops, which is the biggest forecast over the past 10 years. This forecast could actually be upgraded again because of all of the rain. Mr Oberg said that there’s a normally a big crop when there’s a lot of rain, and this can extend for a number of years.
Elders actually recently reported its FY20 result. It revealed that sales revenue increased by 29% to almost $2.1 billion. Underlying earnings before interest and tax (EBIT) rose by 62% to $119.4 million, underlying profit after tax went up 71% to $109 million, statutory profit after tax increased by 80% to $124.2 million and operating cash flow rose by 887% to $110.5 million. It also increased the dividend by 22% to 22 cents per share.
Regarding Elders and Graincorp, Mr Oberg said: “Elders will benefit as more farmers buy crop protection products. GrainCorp is the most leveraged to an increase in the crop size and we believe that a number of the efficiency gains and cost savings implemented by management over the last few years will be present in the numbers.“
However, damaging storms can be something to watch out for and the rain is an important factor, though WAM is expecting a few good years after this.
There was another agricultural ASX share that Mr Oberg named as a potential opportunity, Select Harvests Limited (ASX: SHV), which is one of the biggest growers of almonds in Australia. The Select Harvest share price is still down by around a third from its February 2020 high.
Mr Oberg said: “If we have a vaccine and observe greater support in the almond price we should witness significant upside to Select Harvest’s share price.” A vaccine could help almond demand from China and India recover.
Select Harvests itself recently gave an update about its 2021 outlook. Select Harvests managing director Paul Thompson said: “Tree health and crop outlook is positive. Recent rains have resulted in higher annual water allocations and lower water market pricing. At this early stage, the outlook for the SHV 2021 crop is positive. The food division continues in a challenging Australian domestic market has seen a shift from the food service segment to the retail segment. We have continued to invest in the Sunsol and Lucky brands and have just ranged six additionally Lucky cooking products in Woolworths Group Ltd (ASX: WOW) nationally.”
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Infomedia. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Elders Limited, Infomedia, and Ramsay Health Care Limited. 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.