Ask A Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. Yesterday, Medallion Financial managing director Michael Wayne revealed the 3 ASX shares that have gone gangbusters for him. Today, he explains why he's getting his clients to buy 3 ASX shares in particular.
Hottest ASX shares
The Motley Fool: What are the 3 best stock buys right now?
Michael Wayne: One that we've been buying consistently really over the last couple of years with some degree of success has been Audinate Group Ltd (ASX: AD8).
We continue to like this company, particularly as we emerge from lockdown. Audinate's involved in the audio digital space. It essentially allows different pieces of electronic equipment to communicate without the needs for cords and cables. So if you think about a Bose sound system, or Toshiba, all these different brands effectively embed this protocol that Audinate creates called Dante.
And about 80% of new products coming to market incorporate this Dante product. So they've got a pretty strong market position. The adoption rate of their technology is about 18 times the nearest competitor. They're also now moving into the visual-digital space as well, so that would be a new market for them.
Obviously COVID wasn't great for them, because if you think about outdoor concerts or large sporting events, they were on the backburner. But we're now coming out of that, and this is a company that should benefit from that.
One caveat — and they have been under a little bit of pressure recently, although they're starting to bounce back now — is that they are having some supply issues, like many other businesses across numerous industries at the moment, which is making it a bit difficult for them to meet their demand. But the good thing is their order backlog is very, very juicy, and it's growing very, very quickly. So as long as they can continue to meet that demand, they should be in a pretty good position.
MF: This is a long term investment?
MW: Yeah. I mean, long term as long as something can be long term. Obviously, we're reviewing the updates and the annual reports and half-year reports, et cetera, but we would like to see this one as a long term hold for sure.
The balance sheet's improving a lot. They've spent a lot on research and development in recent years and that's starting to come to fruition for them. So we see no reason why this can't be an unregulated monopoly of sorts… So yeah, we think it's a long term buy.
Second one on the list is a company called XRF Scientific Limited (ASX: XRF).
Although it is a smaller company, it's not trading on the lofty multiples that you would normally associate with the tech space.
XRF Scientific's effectively a mining services company. They sell machines to mining companies so that they can conduct tests on their core samples. And what's good about that is not only do they sell the machines, they then sell them the chemicals which are used in those tests, and the chemicals are consumable in nature. So once they're used once, they've got to be replenished and bought again.
It's a good recurring revenue stream for them. They've obviously been benefitting from the boom that we've been seeing across most commodity suites at the moment.
Pays a good solid dividend yearly, about 3.5%. It's got a strong balance sheet. They too have spent a lot on research and development in recent years and that's started to pay off for them. A multiple of 25, 30 times earnings, as well, isn't too challenging for a company that is growing quite nicely.
MF: Its clients are mining companies, so are there any worries about their cyclical nature?
MW: Look, that is definitely one element of concern, being in the mining space. They do have applications for other industries as well. But the fact is they are growing quickly enough too, we think, offsets any sustained downturn in the mining space.
That's definitely something you've got to be conscious of. But we're pretty confident that the commodities space will hold up. I mean, commodities are very, very cyclical, as you say, and almost impossible to predict, but looking across the board, not just at your typical iron ore and coal, et cetera, but some of these newer type commodities that are emerging and becoming more and more prevalent, we think will support that going forward.
MF: And the third one?
MW: The third one, I'm going to go a bit more boring here. Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) is one that we have been buying for clients in the last couple of days, for those that don't already hold it, and for some clients even topping up.
They had a very good update. Obviously, being in the respiratory and acute care, they've been benefiting from the COVID situation. But much of the market was predicting that that COVID boost would fade, but as it turns out, although the numbers have come back a little bit, their results delivered far in excess of expectations across the market.
We think that that COVID story, as we're seeing in Europe and Africa, won't necessarily disappear overnight, and is going to be a lot more sustained than people originally thought, so we think that Fisher & Paykel will continue to benefit from that.
They're also seeing some good sales outside of the typical markets of US and Europe, which we think bodes well for future growth drivers, those emerging markets. There have been some strong signs in their nasal high flow therapy adoption as well, which we think is promising for them.
Also, Fisher & Paykel [has] one of the highest quality balance sheets on the market, and at the moment, it is trading on a PE multiple at the bottom end of its long term average.
We think it's not a bad time to be looking to pick up a very good quality growth business at a multiple that is very challenging by traditional metrics, but for this business, it's on the lower end of that scale. For a company that's growing as quickly as they are, they can very quickly justify and grow into that multiple.
