Gambling & explosives: fund reveals 2 ASX shares to buy right now

Inflation and interest rate rises mean businesses that make positive earnings now are now more valued than those with future potential.

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With interest rates expected to rise multiple times later this year, high-growth ASX shares for companies that don’t turn a profit are definitely out of favour.

Current cash flow and earnings have become more important, as investors move away from future to current potential.

As such, it was interesting to note two stocks that the Investors Mutual Concentrated Australian Share Fund had in focus in its latest memo to clients.

This ASX share isn’t a gamble, says fund

Investors Mutual analysts noted that Tabcorp Holdings Limited (ASX: TAH) shares had gained 7.6% during the first quarter.

But they reckon there are more returns coming.

“The company delivered a solid result driven by continued positive operating momentum in the core lotteries business.”

Tabcorp is currently undertaking a separation of its lotteries business.

“We continue to see long-term value in the lotteries business and believe that post demerger, M&A interest in both the lotteries and wagering businesses could resurface.”

The share price of Tabcorp is up more than 3% for the year. It has proven resilient against this year’s drop in the general market outside mining and financials.

The stock closed Wednesday at $5.42.

The Investors Mutual team isn’t the only one optimistic about the betting company’s fortunes.

Goldman Sachs Group Inc (NYSE: GS) analysts earlier this month named it as a buy with a price target of $6.20, which is an almost 15% premium to the current level.

The power of setting your own prices

The Investors Mutual memo noted that Orica Ltd (ASX: ORI), as “the world’s leading explosives manufacturer”, enjoyed a 16.5% boost in its share price last quarter.

The team likes the pricing power of Orica during a period of high inflation.

“Explosive prices have risen for two reasons,” the IM memo read.

“Firstly, mining volumes have increased due to the higher commodity prices which in turn has led to higher demand for Orica’s explosives. Secondly, supply shortages of explosives have emerged from eastern Europe due to Russia’s invasion of Ukraine.”

Investors Mutual Concentrated Australian Share Fund remains positive about the company’s future.

“We continue to hold Orica in the Fund, as the company’s recovery post-COVID is still in its early phases and we remain positive on the company’s capital light growth strategy in the mining software market.”

The Orica share price finished Wednesday at $16.30.

Back in February, Investors Mutual director Anton Tagliaferro identified the explosives maker as one of the best examples of current cash flow-positive businesses.

“As investors begin to appreciate real cash flows generated by companies in the next two to three years, as opposed to hoped-for cash flows in 10 or 20 years’ time.”

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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