Two years after COVID-19 arrived in Australia, the world is still a very uncertain place.
A year ago optimism was high with vaccinations about to roll out — then the Delta variant plunged Australia’s 2 largest cities into long winter lockdowns.
Spring arrived, those lockdowns ended, and by November most of us were vaccinated. Huzzah!
Then bam, Omicron landed and Australians were left scrambling for rapid tests like they had been for toilet paper 20 months earlier.
So it’s no wonder ASX shares have been up and down in recent times.
Sure, the S&P/ASX 200 Index (ASX: XJO) returned a tidy 13% over the 2021 calendar year. But it has lost 3% since the August reporting season.
In such volatile times, IML Investors Mutual is turning to big reliable businesses.
“As we head into 2022, we believe share markets will be primarily influenced by the direction of interest rates as central banks continue to mull over whether current inflationary trends are [transitory] or becoming embedded,” an IML memo to clients read.
“We continue to steer away from the riskier parts of the sharemarket and remain focused on identifying and holding what we assess to be good quality companies, …which can do well over the next 3 to 5 years.”
Here are 2 such examples currently held in IML’s Concentrated Australian Share Fund:
A recent loser ready to rejuvenate
Giant biotech company CSL Limited (ASX: CSL) has been a frustrating stock to own the past couple of years.
The share price is still about 19% down on its pre-COVID high, despite good prospects for the years to come.
Late last year it even pulled off a $17.2 billion acquisition of Swiss firm Vifor Pharma. But the market punished CSL even further, sending the shares down 14% since late November.
For IML, all this means is that CSL is a bargain right now.
“The acquisition is forecast to be double-digit accretive to CSL’s earnings as well as provide them with a strong distribution channel to sell their kidney-related drugs currently in phase III development,” the IML memo read.
“CSL continues to look attractively priced, considering the quality of the business and the large number of potential products they have in phase III trials, including CSL 112 and a number of transplant drugs.”
CSL shares closed Wednesday at $270.91 and remain the largest holding in the fund.
A recent winner set to rocket further
Unlike CSL, telecommunications provider Telstra Corporation Ltd (ASX: TLS) has had a nice run of late.
The share price is up 35% over the past 12 months, while giving out a handy 2.36% dividend yield.
But the IML team certainly doesn’t think it’s done yet.
“The company.. Announced at its investor day in November that it has finalised the separation of the company’s fixed line infrastructure into InfraCo Fixed, paving the way to unlock further value through a potential partial sale of that asset,” the memo read.
“This follows the sale of a 49% stake in the company’s tower assets (Amplitel) to the Future Fund earlier in 2021 for a higher than expected price, highlighting the strong valuations currently being achieved for infrastructure-type assets in the current environment.”
The team also loved Telstra’s buyout of Digicell Pacific.
That deal saw the telco only have to pay about 20% of the acquisition cost, while the Australian government footed the rest of the bill as a foreign policy move.
IML analysts don’t think the business from South Pacific islands will make a huge difference in the bottom line of a $50 billion company like Telstra.
But they liked the non-monetary message behind the deal.
“While not overly material from a financial perspective, the deal cements a stronger relationship between Telstra and the government — since highlighted by a 5-year $1 billion contract with the Department of Defence.”
Telstra shares closed Wednesday on $4.18.