‘Future-proof your portfolio’: experts pick 3 quality growth ASX shares to buy

Growth shares have been hammered the past six months. A couple of fund managers nominate which ones to pick up right now.

| More on:
The hands of three people are cupped around soil holding three small seedling plants that are grouped together in the centre of the shot with the arms of the people extending into the edges of the picture representing ASX growth shares and it being a good time to buy for future gains

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It’s almost a biblical test of faith for investors in growth shares this year.

As inflation persists and interest rates rise, the market is abandoning businesses whose valuations rely on future earnings.

But the fact remains rates still remain very low by historical standards and will still be even after multiple hikes this year.

“There’s been so much hysteria around it. But you have to remember we’re only at 0.35% — and rates were at 2% before COVID hit,” TMS Capital portfolio manager Ben Clark told a Livewire video.

“And the economy’s growing faster now than it was then.”

Both Clark and Tribeca portfolio manager Jun Bei Liu indicated that stock prices will eventually catch up for quality businesses with positive and growing earnings.

But the emphasis is on “quality”.

“Our portfolio has been gradually moving towards more healthcare — some of the structural growth leaders. But remember, these companies have delivered growth for decades and they will continue to do so for the next few decades,” she said.

“Soon the market will come back to those companies and realise that everywhere else growth is going to be hard to deliver.”

Liu and Clark specifically named such 3 ASX shares that are tempting buys at the moment:

‘Future-proof your portfolio’

CSL Limited (ASX: CSL) is “an easy one” for Liu.

“Its earnings were hurt by the pandemic, simply because the blood collection was tough over the last few years,” she said.

“In its most recent update, CSL actually talked [about] that — it’s actually picking up quite quickly, which means earnings will grow quite significantly after that short-term disruption.”

The CSL share price has dropped more than 6.3% for the year so far, and 12.7% since November.

With the cool-off in share price, Liu reckons CSL shares are “trading on a very reasonable multiple for the growth it is going to deliver”.

“The company is fully funded, generating really great cash flow. It’s really helping you to future-proof your portfolio.”

‘One of the highest quality businesses’

According to Clark, “most fundies” would count Xero Limited (ASX: XRO) as “one of the highest quality businesses on the exchange”.

“But it’s been very expensive, and it’s just got significantly cheaper.”

Indeed, he noted the accounting software provider has not reported any results this calendar year, yet its share price has plummeted 40%.

“On face value, it still looks expensive, mainly because they pump about 80% of their revenue back into investment,” said Clark.

“That’s the business that is at the tipping point of the overshoot… that could run hard if we start to see that play out.”

‘Mature’ growth businesses are the safest in this climate

Seek Limited (ASX: SEK) is a “mature” growth business that has “a lot of certainty around the earnings”, according to Clark.

“The multiple compression isn’t going to be too violent from this stage,” he said.

“You still want to avoid businesses that need the share market to fund their future growth. That is not where you want to be at the moment.”

Analysts at Firetrail noticed a pattern in the US that they suspect will be replicated in Australia.

“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 said in a memo to clients.

“This trend will benefit a company like Seek, who is a beneficiary of higher labour force turnover.”

The Seek share price has lost more than 25% since the start of the year.

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

More on Growth Shares

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

3 excellent ASX growth shares that analysts are excited about

Analysts rate these growth shares very highly...

Read more »

A happy woman raises her face in celebration, indicating positive share price movement on the ASX
Growth Shares

Analysts say these ASX growth shares have huge upside potential

These growth shares could have heaps of upside...

Read more »

a graph indicating escalating results

Where to find value in growth? Here are 2 ASX shares I’d buy in July

Both of these ASX shares could achieve good things in the future.

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Growth Shares

Analysts tip big returns from these ASX growth shares

Here are two ASX growth shares analysts expect big returns from...

Read more »

happy investor, share price rise, increase, up
Growth Shares

Here’s why brokers rate these ASX growth shares as buys

Here's why these growth shares could be buys next week...

Read more »

Woman smashes dollar sign for dividend share investment
Growth Shares

2 beaten down ASX shares named as buys by experts

Here are two beaten down shares that could be buys...

Read more »

smiling man holding phone technology
Growth Shares

Analysts name 2 excellent ASX shares to buy and hold

These ASX shares could be top buy and hold options...

Read more »

The hands of three people are cupped around soil holding three small seedling plants that are grouped together in the centre of the shot with the arms of the people extending into the edges of the picture representing ASX growth shares and it being a good time to buy for future gains

Why I think these 2 ASX shares are ideal for growth investors

This current volatile period could be a great time to go hunting for compelling businesses with strong growth potential.

Read more »