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 14.9% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 10.4%.
These are the ASX shares that WAM outlined in its most recent monthly update:
ResMed Inc (ASX: RMD)
WAM Leaders says that ResMed is a respiratory device manufacturer and medical software as a service (SaaS) provider.
The fund manager noted that the company experienced a significant rise during June largely as a result of Philips, a key competitor in the obstructive sleep apnea (OSA) industry, announcing a recall of 3 million to 4 million CPAP (continuous positive airway pressure) devices manufactured between 2009 and 2021 due to foam degradation issues.
WAM expects the ASX share to experience an increase in demand for devices as a result of this, which should aid in offsetting the channel destocking event that would usually occur ahead of the launch of a new device. Despite the recent share price momentum, the fund manager continues to be positive about the long-term outlook for ResMed as it expects performance market share gains to arise from Philips’ reputational damage and the upcoming ‘AirSense 11’ launch later this calendar year to drive revenue higher.
The fund manager believes the ASX share’s valuation compared to the growth outlook of ResMed is more attractive than its large healthcare peers.
According to Commsec, the ResMed share price is valued at 38x FY23’s estimated earnings.
Cochlear Limited (ASX: COH)
WAM Leaders described Cochlear as a business that manufactures cochlear implant devices to hearing impaired children and adults.
The fund manager pointed that that Cochlear is benefiting from a situation of a similar nature to ResMed. Recent data points suggest Cochlear continues to benefit from market share gains as a result of competitor Advanced Bionics, which is part of Sonova, announcing a recall of some of its cochlear implant devices in February 2020.
The reputational damage of a recall is significant, as the faulty devices require surgical explanting, and in paediatrics can significantly impede speech development, according to WAM.
On top of that, WAM Leaders also said that the ASX share remains a clear winner of the reopening trade and recent feedback from US audiologists suggest cochlear implant patient numbers are strongly above pre-COVID levels. It also said that patient numbers in the quarter ending 30 June 2021 was well above the 2020 calendar year.