Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, U Ethical chief investment officer Jon Fernie explains what he'd do with three ASX shares that have been ravaged this year.
Cut or keep?
The Motley Fool: Let's take a look at three fallen stars — ASX shares that have taken a beating this year.
First one is Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), which has crashed more than 40% since September. What would you do with it?
Jon Fernie: This one's probably a reasonably straightforward one for us. As an ethical investor, we exclude companies with material fossil fuel exposure. Soul Patts has a major stake in New Hope Corporation Limited (ASX: NHC) and so it's not a stock that we would consider.
I think investors also need to be cautious on investing in companies that have big exposure to potentially stranded assets.
MF: How about Fisher & Paykel Healthcare Corp Ltd (ASX: FPH), which has almost halved this year?
JF: We are currently invested in Resmed CDI (ASX: RMD), which is a competitor of FPH, so that would be our preference.
We think that Fisher and Paykel face some near-term headwinds and Resmed looks better in terms of its earnings outlook and valuation.
However, both companies will benefit from [a] product recall that we've seen from another competitor, Koninklijke Philips NV (AMS: PHIA). And I think, if you have a longer-term horizon, you may be willing to hold Fisher & Paykel and still expect that there's a good, longer-term earnings growth opportunity for the company.
MF: Fair enough. And the last one is the mapping company Nearmap Ltd (ASX: NEA), which has lost a painful 55% since November.
JF: Nearmap's one that we wouldn't hold. We think the company's small, but also I think it's facing increased competition in that aerial mapping space. It continues to be a loss-making business. It's going to require a lot of ongoing investment and they're also facing some legal action from a competitor, so overall, not a stock that meets our investment criteria.
