It's a thrill when you're specifically avoiding speculative investments but still see one of your ASX shares rocket 59% in one month.
Amazingly, that's exactly the position the QVG Capital team found itself in — even though it considered the optimistic November market a bit of a "junk rally".
"While we don't have the appetite to punt on high-risk business models, we were still able to generate good returns from our long book," the team said in a memo to clients.
"Pleasingly, our top three contributors this month were all off the back of positive fundamental news-flow."
So let's break down these top performers that QVG analysts are bullish on:
Market rewards cost discipline
In an incredible feat, the $64 billion fintech giant Block Inc CDI (ASX: SQ2) had its shares rally 58.8% last month.
As if that wasn't impressive enough, they've soared a further 8.3% in December.
QVG analysts said that the US company has "a highly impressive history of building and scaling payments products".
But a contemporary twist has really forced investors to sit up and take notice.
"These products (e.g. the Square card reader terminal) have always promised lucrative economics at scale, but it hasn't been until recent history that the company has committed to a more [disciplined] investment in its cost base."
The latest briefing to the market confirmed this pivot, and investors have gone absolutely nuts for the stock.
"This focus on less share issuance and greater cash generation was highly evident in their Q3 update as they committed to a more cohesive organisational structure within Square, an absolute limit on headcount (below the current headcount) and, perhaps channelling Dr Evil, a $1 billion dollar buy back.
"The 22% upgrade to CY24 EBITDA expectations didn't hurt either."
Market rewards increased productivity
Another company that does much of its business in the US, James Hardie Industries plc (ASX: JHX), rallied 24.6% in November in suboptimal conditions for its industry.
"James Hardie's quarterly update similarly showed earnings growth in a tough environment," read the QVG memo.
"Stronger than expected volumes for their 3rd quarter guidance implied earnings 25% to 30% ahead of expectations for this seasonally weak period."
Boosting productivity is a hot topic in Australian economic debate at the moment, but it's a concept James Hardie is executing with aplomb.
"We are continually impressed by the margins that this business is able to achieve as they drive manufacturing efficiency and better procurement.
"What we love even more, however, is the strong returns on capital and long runway for continued market share growth."
Market rewards smart buy
IPD Group Ltd (ASX: IPG) is a service and parts provider to the electrical industry.
Its ASX shares rocketed more than 28% in November, on the back of a distinct catalyst.
"IPD Group gave a trading update in-line with broker earnings estimates, but this was likely better than feared as they had an absence of large projects during the half and still delivered," read the memo.
"Eclipsing this though, was their acquisition of CMI [Operations] at an earnings multiple that resulted in 30% EPS accretion."
The numbers of the takeover are "attractive" to QVG analysts but, perhaps more importantly, the IPD executive team seems to understand "the people, culture and operations" of CMI.
"We expect that in time each business will be able to unlock incremental revenue opportunities for each other."
