This is what I’d do with these 3 battered ASX shares: fund manager

Ask A Fund Manager: U Ethical’s Jon Fernie decides whether he’d buy, keep or cut a trio of stocks that have fallen out of favour with investors.

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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.

Motley Fool contributor Tony Yoo has positions in Fisher & Paykel Healthcare Corporation Limited, Nearmap Ltd., ResMed Inc., and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Nearmap Ltd., ResMed Inc., and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has positions in and has recommended Nearmap Ltd., ResMed Inc., and Washington H. Soul Pattinson and Company 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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