The fund manager Wilson Asset Management (WAM) has told investors about two ASX shares that it has in its portfolio.
WAM operates several listed investment companies (LICs). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE).
There’s also one called WAM Capital Limited (ASX: WAM) which targets “the most compelling undervalued growth opportunities in the Australian market.”
The WAM Capital portfolio has delivered an investment return of 16.5% per annum since inception in August 1999, before fees, expenses and taxes. This gross return outperformed the S&P/ASX All Ordinaries Accumulation Index return of 8.7% per annum over the same timeframe.
These are the two ASX shares that WAM Capital outlined in its most recent monthly update:
Australian Clinical Labs Ltd (ASX: ACL)
WAM explained that Australian Clinical Labs is a healthcare business that provides pathology services in Australia. It has 86 accredited laboratories which provide services for more than 8 million people and 90 public and private hospitals.
The fund manager noted that the ASX share traded below its initial listing price after listing a few months ago. However, WAM reckons the market didn’t understand its earnings power because the focus had been on automating systems and processes, coupled with increased levels of COVID-19 testing – the Australian Clinical Labs share price grew 14.1% during the month.
Why does WAM like the business now? It thinks the company will be able to increase its market share, which can be aided by earnings accretive acquisitions with its balance sheet.
The fund manager points out that Australian Clinical Labs was valued at an approximate 30% discount compared to its peers. This could change if the business can deliver the potential superior organic growth rates and successful acquisitions that WAM is expecting. This could lead to a re-rating of the business.
Select Harvests Limited (ASX: SHV)
The other ASX share that WAM currently likes is the leading almond producer Select Harvests. It is one of the largest growers in Australia.
WAM points out that Select Harvests has already benefited from “considerable growth” in Australian almond production and consumption in the last decade.
Australia is now the second biggest producer of almonds in the world, after the US.
One of the things that WAM noticed from a recent Select Harvests update was that there is growing demand for almonds with Australian almond exports up 67% on the prior period.
The almond business is also seeing higher market prices for its commodity. A downgrade of the US 2021 crop harvest is helping drive an increase in the overall market price for almonds by $0.50 per kilo to a range of $6.75 per kilo to $7.25 per kilo.
Wilson Asset Management believes that almond prices are set to stage a “multi-year recovery” which will help Select Harvests with its increased ownership of almond farms after the Piangil Orchard acquisition in October 2020.