3 ASX shares destined for greatness: Firetrail

Stocks themselves have no memory, so even ones that have dropped violently this year can shoot back up if the underlying business is sound.

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A female athlete in green spandex leaps from one cliff edge to another representing 3 ASX shares that are destined to rise and be great

Image source: Getty Images

You might be sick of hearing this, but turbulent times like now mean it’s more important than ever to retain a long-term view of ASX shares.

You might look at a particular stock and be horrified that it has dropped half its value this year.

But past share price movements have no links to future performance. 

Yes, we know that goes against human instincts. But it’s true — stocks are not living beings and they have no memory of where they have been!

So let’s take a look at three examples of ASX shares that have plunged horribly but have sensible tailwinds behind them for the long term, according to Firetrail Investments.

Competitive advantage in a nascent market

Investors of Telix Pharmaceuticals Ltd (ASX: TLX) must be tearing their hair out right now.

The biotechnology company’s prostate cancer product Illucix was released last month, yet the shares have lost an alarming 56% so far this year.

Firetrail analysts still have faith that the stock price will catch up with company performance in the future.

“Telix has a distribution advantage over competitor Lantheus Holdings Inc (NASDAQ: LNTH), given the Illucix radioisotope can be stored in generators at nuclear pharmacies,” their recent memo to clients read.

“Telix’s distribution partner Cardinal Health Inc (NYSE: CAH) has over 100 nuclear pharmacies across the United States, giving them greater proximity to patient dosing sites.”

Pengana High Conviction portfolio manager James McDonald is also a fan of this ASX share. He said last week that Telix could become a 10-bagger.

“There’s a real revolution going on in radiotherapy in recent years,” he said.

‘Significant’ medium-term growth opportunity

If you can believe it, Megaport Ltd (ASX: MP1) has been even less fun to own than Telix.

The stock price for the virtual network provider is more than 65% lower than where it started the year.

The Firetrail team understands the short-term movement downwards.

“Megaport reported 3Q FY22 revenues that were modestly below market expectations,” read its memo.

“The lower step-up in monthly recurring revenue raised some concerns around the pace of its partner channel strategy ramp-up and the extent to which this may be impacting momentum in Megaport’s core business.”

But with the world moving more and more of computing into the cloud, the thematic tailwinds just cannot be denied for this ASX share.

“We continue to believe the medium-term growth opportunity for Megaport is significant and will be realised within a reasonable timeframe.”

Shaw and Partners senior investment adviser Adam Dawes also said last week that his team has been buying up Megaport shares.

“We really like this one… It’s even lower than $8 today — I think there’s definitely some value there.”

The Megaport share price closed Thursday at $6.58, down 9.74% for the day.

People are leaving their jobs 

The Firetrail team noticed a remarkable phenomenon going on in the US.

“Since COVID-19, the rate of voluntary resignations in the US has soared to its highest level in over 25 years, well above levels seen post-GFC,” they noted.

And the analysts are seeing a similar trend in Australia too, which will have an impact on ASX shares.

“Higher labour costs will hurt companies with tighter profit margins and larger labour forces,” the Firetrail report said.

“On the other hand, this trend will benefit a company like Seek Limited (ASX: SEK) who is a beneficiary of higher labour force turnover.”

The share price for the jobs classifieds site is down 28.6% so far this year.

Motley Fool contributor Tony Yoo has positions in MEGAPORT FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO and SEEK Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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