Many growth shares will make a comeback, one expert says, but don't be tempted into thinking they all will.
That's the message from TMS Capital portfolio manager Ben Clark, who said the ones that will rise again are businesses that are profitable or "on the cusp" of it.
"I'm sure everyone watching this has one or two stocks that they look at in their portfolio and think, 'Why the hell did I buy that?'," he said in a Livewire video.
"Maybe it was a tip on a golf course."
So considering the need for selectivity in 2022, he urged investors to not hold onto ASX shares just with the vain hope that the price will come roaring back.
"Some things won't come back," he said.
"There was a lot of froth and excess — particularly in the second half of 2021 — which is being really washed out of the market at the moment."
Clark named 7 growth ASX shares that are mature enough to be turning a profit or on the verge of it that he's confident about a bounceback:
The magnificent seven
The companies he nominated all reported positive numbers during the February financials season:
- REA Group Limited (ASX: REA)
- Seek Limited (ASX: SEK)
- Resmed CDI (ASX: RMD)
- Macquarie Group Ltd (ASX: MQG)
- Pro Medicus Limited (ASX: PME)
- IDP Education Ltd (ASX: IEL)
- Xero Limited (ASX: XRO)
Backing businesses that are turning a profit and reporting bright financials sounds obvious, but they're the growth shares that will surge again, according to Clark.
"The market will come back," he said.
"When growth starts to run, the businesses that reported really strongly in February, and it was just completely ignored, will be the first businesses to roar back."
Accounting software provider Xero has been one of Clark's largest holdings.
"It's dropped 40% from its January 1 high," he said.
"It's such a resilient, consistent business. I don't think you're going to get any bad news from it."
Two online classifieds businesses also make Clark's list.
"REA grew their earnings 37% last half. Every newspaper I pick up on Monday, there's a record number of auctions on Saturday," he said.
"Companies like Seek, the job market is as tight as I've ever seen it."
Macquarie reported "its best quarter on record" and Resmed is still enjoying the effects of competitor Koninklijke Philips NV (AMS: PHIA)'s product recall.
"These are still 20%, 30% off their January 1, two-month prices. The businesses are continuing to trade extremely well," said Clark.
"IDP is another one that I listened to the result and I thought was excellent."
Pro Medicus is the very long-term bet out of the seven picks.
"Very high PE feels like the thing you shouldn't be buying at the moment, but I suspect that's the time you want to be getting really interested."
