Respected fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in its portfolio.
WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).
There's also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.
WAM says WAM Leaders actively invests in the highest quality Australian companies.
The WAM Leaders portfolio has delivered gross returns (that's before fees, expenses and taxes) of 12.8% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 8.7%.
These are the two ASX shares that WAM outlined in its most recent monthly update, which were two of the largest contributors of performance for the month:
IGO Ltd (ASX: IGO)
WAM described IGO as a clean metals exploration and mining company producing nickel, copper and gold.
In December, the IGO share price rallied strongly after IGO's entry into the lithium sector, through a non-controlling stake of a Western Australia lithium mine and lithium hydroxide plant.
The fund manager said that the transaction aligns with the ASX share's long term strategic plan to support the structural shift into battery storage, with the company noting electric vehicle sales are expected to grow approximately 18% per annum through to 2030. If IGO announces the divestment of its Tropicana gold mind, the fundie expects this will be a further positive catalyst for the share price of IGO.
In FY20 the company generated record underlying free cash flow of $311 million for the year. It also generated record net profit after tax (NPAT) for the year of $155 million, an improvement of 104% over FY19.
The ASX share said in its quarterly report for the period ended 30 September 2020, the Nova operation production increased quarter on quarter for all metals. Cash costs were lower at $2.25 per payable pound of nickel. Tropicana gold production was up 5% on the prior quarter at 107,060 ounces. It also said that commercial production from the Boston Shaker underground mine was declared.
For that quarter, it generated revenue and other income of AU$227 million and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $121 million at a margin of 54%. It also generated cashflow from operations of $110 million and generated free cash flow of AU$84 million for the quarter.
BHP Group Ltd (ASX: BHP)
WAM said that not only is BHP the largest resources company on the ASX, but it's one of the most diversified, producing iron ore, oil, gas, coal, copper, nickel and uranium.
The fundie said that while the December outperformance was primarily driven by higher by iron ore prices, WAM favours the ASX share for its exposure to oil, nickel and copper in particular.
Over the near term, WAM expects oil prices to be supported by a continued recovery in coronavirus-related demand, with travel and industrial production being two examples.
Over the longer-term, a catch up in capital expenditure should see a significant tightening in supply. The fund manager said it's constructive on nickel and copper for the same electric vehicle reasons that were said about IGO.
