Image source: Red Leaf Securities
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, Red Leaf Securities chief executive John Athanasiou reveals how he's in favour of picking up bargains in one particular sector.
Investment style
The Motley Fool: How would you describe your services to a potential client?
John Athanasiou: My name's John Athanasiou from Red Leaf Securities. I'm the CEO of the organisation. We're an investment firm.
Now, we don't have a fund. We manage, we give advice on our clients' stock — stock-specific advice. We specialise in finding undervalued Australian-listed companies that we believe will outperform the market.
Typically, we find these opportunities in the small-cap space. They're very under-researched, which provides you the opportunity to generate alpha returns.
MF: The past 12 months haven't been pleasant for small caps. How do you see the market moving from here?
JA: I'm actually relatively bullish. I think the worst of the inflation scare is behind us.
Not many people have realised all the positive things that'll come out now in relation to inflation easing. Recently we saw inflation easing and China's reopening their economy, which is quite positive for equities. In terms of all the negative news, i.e. high inflation, I think that's starting to come under control.
We're very bullish in the technology sector. I think a lot of people haven't realised that the S&P/ASX All Technology Index (ASX: XTX) is up circa 9.87% for the year, while the S&P/ASX 200 Index (ASX: XJO) is up 4.5%. So we're very bullish on equities, particularly technology stocks that were severely beaten last year.
Hottest ASX shares
MF: What are the two best stock buys right now?
JA: My first pick is BlueBet Holdings Ltd (ASX: BBT). They've got a cash position of circa $30 million, [with] the market cap at $60 million.
Now the reason why we like it is that it's severely undervalued in our opinion. It's been unfairly tarnished with the other tech stocks from last year.
Management has bought stock, so they're putting their money where their mouth is. And we're really excited about their opportunities in America. In America, they're growing in a very conservative capital-like fashion. What I mean by that is they build relationships with existing bricks-and-mortar operators and casino gambling operations over there, and they supply their technology.
Because in the States, each state's different in terms of their gambling laws. That's a better way of doing it as opposed to its competitors that are just spending cash hand-over-fist to buy customers, essentially.
So we're very bullish on BlueBet. We think that's probably a very solid recovery story going forward.
My second pick, it's outside of the tech space, is Northern Star Resources Ltd (ASX: NST).
This gold producer announced an interim dividend payment despite their EBITDA declining by 12% to $633 million. It declined essentially because of inflationary pressures like everyone else is facing. Now we see inflation easing, so those cost pressures will decrease as a result.
On top of that, gold actually performs well when things deflate, people kind of forget that. Because there's an opportunity cost of owning gold. If you own gold, you're giving up the opportunity to earn interest or get paid a dividend.
Now that inflation's easing, we see central banks around the world will start calming down with their cash rate rises. We see [it's] very positive for gold going forward.
MF: The Northern Star share price dipped 17.4% in February. Was that just the gold price cooling off?
JA: It was just the gold price, just natural fluctuations in the market. People got a little bit ahead of themselves. There were scares of inflation not coming down as quickly as anticipated… There was a bit of fluctuation in gold prices.
