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 gives his thoughts on the ASX shares that are savagely discounted at the moment.
Cut or keep?
The Motley Fool: Let's examine three ASX shares that have been devastated this year, and see if you think each of these is now a bargain buy or a value trap.
The first one is Megaport Ltd (ASX: MP1), which has plunged almost 60% over the past year.
John Athanasiou: It's down quite significantly and it's one of the most shorted stocks on the ASX, Megaport. They've got a short interest of roughly 9%.
This network provider, they appear to be targeted by these shorters because they've got operating issues, it seems. So I would call it for now a value trap, even though I do like the tech sector. There's no rush into it right now.
MF: Fair enough. Maybe you'd consider it if it got even cheaper?
JA: I would definitely consider it if it gets cheaper. Absolutely, yeah.
MF: The next one is Poseidon Nickel Ltd (ASX: POS). It's also down about 60% over the past 12 months. Your thoughts?
JA: In relation to Poseidon Nickel, even though I do like my small to micro-cap stocks, I would be a little bit cautious and wait for their Black Swan project to restart before getting involved in that one.
I am bullish on nickel prices, but at this stage, nickel prices have fallen a fair bit. They're beginning to recover. But I think it'd be a more cautious approach and wait until that Black Swan project restarts.
MF: There's probably other producers that are already in production mode, aren't there?
JA: Exactly. So there's other opportunities out there. And if you want exposure to the resource, then you can go to the majors as well.
MF: The third one is Dusk Group Ltd (ASX: DSK), which is a retailer down about 39% over the past year. What do you reckon?
JA: Discretionary retailers had a real rough time and Dusk is no different.
The RBA rate [rises] are really starting to bite on consumer spending. I just don't see consumers rushing out to buy candles no matter how good they smell right now.
They did mention their online sales are decreasing and the CEO, Peter King, is trying to offset this by opening six new stores. Now obviously you'd imagine that'll impact margins, opening new stores and the cost associated with bricks-and-mortar.
Even though we're bullish on the market, we're avoiding discretionary spending because it's only now we're seeing the real world impact of cash rates rising.
There will be a time to buy Dusk, but I don't think it's right now. Maybe towards the end of the year or early next year, you'll be looking at discretionary retail stocks.
The ASX share for a comfortable night's sleep
MF: If the market closed tomorrow for four years, which stock would you want to hold?
JA: Well, four years is a long time not to have any information. So in light of that, I'd have to go conservative. I'm looking at Commonwealth Bank of Australia (ASX: CBA).
They pay you a decent dividend, 4%. They essentially grow with the Australian economy and they're going to be around in four years.
