The following article has not been sponsored by any parties.
2020 whacked Australia’s economy harder than 2001 hit American airport security. But as Australia’s hospitality and travel industries begin a slovenly limp back to normal, the ASX, buoyed by a miraculous NASDAQ rally, has rallied harder than a supercar.
While experts agree it will take years for the ~real~ economy to grow back to 2019 levels, the stock market is currently living in a world of its own. Whether this can be maintained or whether it’s a peach about to go putrid, we’ll leave for the experts.
What’s not up for question is that you don’t want to be throwing money away right now. So rather than trust your mate’s brother’s cousin (or your Uber driver who assures you ‘there’s still momentum’), DMARGE, each month throughout 2021, will be bringing you the top three ASX picks of Luke Laretive, CEO of Seneca Financial Solutions – and his analysis on each one.
We’ve had some fantastic winners (VUL, SUL, GDA) and few duds (GSM) but overall, Laretive’s picks have averaged a 65.6% return over the period (before dividends, franking credits and currency movements).
Without further ado: see below Luke Laretive’s picks (underneath the disclaimer) for the best Australian shares to buy right now.
This article is of a general nature only and does not consider your objectives, financial situation or needs.
You should consider the appropriateness of the information in light of your objectives, financial situation and needs before acting on it and obtain copies of any relevant disclosure documents. Seneca Financial Solutions does not warrant the accuracy or reliability of the information in this report.
Luke Laretive, Seneca Financial Solutions, its Directors and its associated entities may have or had interests in companies mentioned. They may have or have had a relationship with or may provide or has provided investment banking, capital markets and/or other financial services to those companies mentioned.
Luke provides clients with a weekly note, which you can access here.
All figures in Australian dollars (1 AUD = 0.75 USD at time of publishing)
Warrego Energy (WGO) $0.225, $225m market cap
Warrego owns a 50% interest in the West Erregulla gas project in the Perth Basin, with Strike Energy (STX) owning the other 50% and operating the project. WGO last week successfully raised $50m from institutional and professional investors at $0.22 per share to fund the long lead items needed to start construction of the gas processing plant and do some remediation work on well #3.
While flow tests from the 4th and 5th wells are expected to be in line with previous good results and add to their significant (513bscf) 2C resource, we see the debt financing and Final Investment Decision (FID) on Phase 1 as the key share price catalysts in the next few months.
Strike, who own the other half of this project, are market capped at $665m, and while they’ve got a couple of other interesting projects, those projects aren’t worth $440m in my mind. On this basis, WGO, can double or triple from the current share price if things go to plan and should certainly be a takeover target for any other Western Australian-based large cap gas company that is short gas…
In short: Materially mispriced for its stage in development.
Corella Resources (CR9) 4.7 cents per share, $15m market cap
Corella is awaiting kaolin laboratory results from its 114-drill hole program at the Tampu Project in Western Australia. I am expecting something released to the market this month, which hopefully will go a long way towards CR9 defining a maiden resource and allow them to be accurately compared to peers like SUV (+650% LTM), FYI (+1197% LTM), ADN (+194% LTM) and LRS (+600% LTM).
In short: A stock in a white-hot sector with news imminent.
AML3D (AL3) $0.205 per share, $20m market cap
Large format, industrial-scale 3D printing company AL3 has had a hard time on the boards until recently, when it signed a small but significant contract with Boeing (BA.NYS). I like the technology and the team have done a good job developing a handful of meaningful commercial applications. Though more sales momentum is needed, I think a big contract is just around the corner for these guys, perhaps the Lightforce body armour deal?
In short: As an investor, sometimes you have to ask yourself: “What could go right?”
Watch June 2021’s share recommendations and market wrap with Luke Laretive below.
All figures in Australian dollars (1 AUD = 0.77 USD at time of publishing)
Airbnb (ABNB) USD $140 per share, market cap US $84bn
As inflation expectations have risen, growth names have been sold off 20-30% across the board and Airbnb is no different.
Airbnb is one of those unique businesses that not only have a monogamous relationship with a high value customer, they pretty much invented their category – I mean who would have thought, 10 years ago, we’d be booking holidays at strangers homes… With this sort of moat, high quality reoccurring revenues, a permanent shift in business travel preferences in their favour and so much leverage to the global recovery in travel spend, ABNB deserves a EV/Sales multiple of 20x, something reserved for the very best businesses on the planet (because it bloody well is one!) It’s trading on 15x currently, its probably not going to stay there long.
In short: a really good investment strategy is to buy the best business models on planet earth; this is one of them.
De.Mem (DEM) $0.29 per share, market cap $63m
In small caps, I’m always looking for a few key signposts, that if I can see them under $100m market cap, I’m confident I’ll make more money than I lose.
Think fast growing revenues, excellent cash conversion, self-sustaining/profitable, expanding margins, reliable, honest management, favourable industry tailwinds. DEM ticks all these boxes and is trading on 2x EV/Sales ($10m in cash), is under-owned by institutional investors (not for long) and can (and has) delivered organic growth in excess of 20% year after year.
In short: While you’re blowing up your bank balance chasing the over-hyped, under-capitalised, forum-ramped explorers or drug-developers, I’ll be over here invested in DEM compounding my capital.
MyDeal (MYD) $0.69 per share, market cap $177m
Fair to say its been a rocky ride holding MYD stock to date, but I’m sticking fat as the market can’t seem to see the difference between a mature e-commerce business that is slowing down *cough* Kogan (KGN) *cough* and an emerging one that is just getting started. The team are knocking over all the low hanging fruit (i.e. mobile application, private label products and advertising optimisation) that has helped propel similar businesses, in different categories around the world, to dizzy heights in the past – so there is no reason to think MYD wouldn’t benefit in a similar way. The category is under-serviced and under-penetrated online and management are no fools.
In short: Materially mispriced and misunderstood.
All figures in Australian dollars (1 AUD = 0.79 USD at time of publishing)
Apiam Animal Health (AHX) 91cps Market Cap $117m
Apiam owns 50-odd vet clinics, primarily servicing larger, farm style animals (cows, pigs, horses etc.). AHX has been a dog (excuse the pun) until its recent value-induced run. Most of the ‘value’ has been grabbed by small-cap fund managers and the stock now trades on 18x earnings, which isn’t that appealing to new investors. However, what might be of interest is the recently cashed-up, online pet retailer Petstock just turned up on the register with 16.5% of the company… I smell a takeover bid… and one that, on the face of it, seems to be a very smart, synergistic buy for the savvy retailers who run Petstock who might want to bulk up the revenue and profits prior to IPO.
In short: AHX gets a takeover bid inside 6 months, private equity interests duke it out with Petstock. AHX shareholders get rich.
AML3D (AL3) 28cps Market Cap $28m
After listing right in the middle of the COVID-19 market chaos, the stock rallied to as high as 73cps, only to dwindle since, after a major shareholder, a US-based hedge fund, was put into liquidation and has been aggressively selling down the stock for months. I suspect this selling is finished and management are scaling up for growth, recently adding a CFO, COO and Group Sales Manager. I’m frothing at the prospect of a commercialisation announcement in conjunction with Lightforce, with who AML3D are working on a 3D printed bespoke body armour. If it happens how I think it will happen, stock will see new all-time highs.
In short: Good risk/reward at this market cap with catalysts in sight.
Corella Resources (CR9) 4.5cps Market Cap $13m
After a very orderly clean-up of the register and board, recapitalisation (raised $5m) and refocus, the recently renamed Corella Resources is already drilling for Kaolin in Western Australia. It’s a 2,000m program and hopefully will be the foundation of a significant, high-grade, low-impurity kaolin resource. Kaolin can be converted through processing into high-purity alumina (HPA) which has various applications across technology such as lithium-ion batteries and LED displays which has got small cap investors excited for stocks like Altech (ATC, $73m mkt cap), Suvo Strategic Minerals (SUV, $72m mkt cap) and Latin Resources (LRS, $88m market cap).
In short: Micro-cap in a hot sector with the right people steering the ship. Potential rocket.
All figures in Australian dollars (1 AUD = 0.76 USD at time of publishing)
REA Group (REA) $142.58 Market Cap $18bn
For 5 years, REA has been fighting against falling rates of property market turnover (sales as a percentage of stock). Despite this headwind, REA used their dominant brand and near-monopoly market position to increase prices and profits each and every year. Now, that headwind is turning into a tailwind. If you were paying attention, you might have seen the housing data out last week from CoreLogic. Clearance rates, prices and loans at record highs, lots of new construction. You’ll also have noticed that turnover accelerated at the fastest pace since 2015.
REA looks set to be a big winner as people re-evaluate the need to live so close to work, so close to the city or seek more space as they spend more hours each week in their home. Additionally, higher prices allow people to refinance (see my next stock) and upgrade their home, while low rates make owning over renting seem attractive, with rent in some areas being at near equal to the cost of the mortgage on a similar property.
In short: this means more transactions and more advertising dollars for REA.
Australian Finance Group (AFG) $2.65 Market Cap $700m
Can you tell I’m bullish on the property market? Australian Finance Group is Australia’s largest and most dominant brand in mortgage broking. While it’s not the best run business in the world, it’s improving and looks set to capture a lot of the upside from the aforementioned bull market in residential real estate. Their continued and increasing investment in technology should assist in winning and processing new business, but the real leverage comes from the margins built into their own in-house mortgage book and the impact of a steepening yield curve (it’s good for margins). From a value perspective, relative to peers in the insurance industry, AFG looks insanely cheap on 15x (I’m not saying that AFG deserves to be on the same multiple as SDF or AUB, but maybe somewhere in the middle?)
In short: set to win big from a hot property market and steepening yield curve.
Cedar Woods Property (CWP) $6.75 Market Cap $540m
Residential-focused property developer with a solid track record for generating strong shareholder returns through the cycle. Company earnings are recovering rapidly from COVID and we see CWP as a winner from the aforementioned bull market, operating across land subdivision, apartments and townhouse, as well as in the commercial market in Victoria. The recent pullback looks like an opportunity.
In short: my pick of the listed property developers
All figures in Australian dollars (1 AUD = 0.77 USD at time of publishing)
Last price (at time of writing): $306.16. Market cap: USD$26.5bn. Ansys is the global leader in engineering simulation software-as-a-service. It helps its clients predict how their product designs will behave in a range of real-world environments (think: along the lines of how a particular car design might perform – aerodynamics, downforce etc. – on a particular stretch of road, under certain weather conditions. Ansys has a blue-chip customer base, operates at over 40% EBITDA margins and over the last 5 years have grown their sales at 12.3% CAGR. We see value with the stock trading on 15x EV/Sales.
Adore Beauty (ABY)
Last price (at time of writing): $4.95. Market cap: AUD$465m. Adore Beauty has struggled since listing as I think the market got a bit ahead of what the company could realistically achieve at its inaugural H1 result as a listed company. While I didn’t participate in the IPO, I like the stock at current prices, trading at a discount to other pure-play online merchants like Temple & Webster (TPW) and Redbubble (RBL) with arguably, a much more engaged, stickier customer base and – in my opinion – better management pursuing a more lucrative opportunity set.
Good Drinks Australia (GDA)
Last price (at time of writing): $0.086. Market cap: $108m. After a tricky COVID period, the team at Good Drinks (the company behind Gage Roads Brewing Co, Matso’s Ginger Beer and Atomic Beer Project) are really starting to kick some goals, showing +46% volume growth, continued mark share gains and penetration into the important east coast market at the half-year result. Expecting strong operating momentum to continue and material re-rating of the share price.
All figures in Australian dollars (1 AUD = 0.76 USD at time of publishing)
We’re only just in February but already in 2021 we’ve seen a storm on the U.S Capitol Building, a deteriorating relationship between China and Australia with regards to trade, and a group of Reddit users taking on Wall Street hedge fund managers. It means the stock market remains as volatile as ever, but there are still plenty to get excited about.
Initec Pivot (IPL) $2.78
With geopolitical tensions limiting Chinese exports, Aussie farmers are short on fertiliser. Incitec Pivot looks set to benefit from strong domestic pricing as farmers look to maximise favourable weather conditions.
Trading on only c.14x FY22 earnings estimates, the market might be underestimating the potential for a period of protracted higher prices, and subsequently, profits for IPL.
In short: A global leader with tailwinds.
Origin Energy (ORG) $5.22
Origin is undoubtedly facing lower electricity prices up and down the eastern seaboard, however, its scope to cut costs, improve productivity and grow APLNG production should see earnings continue to go higher. Trading on 15x FY22 earnings estimates, and offering investors a forecast 5% dividend, we see value here with decent sensitivity to increasing LNG prices.
In short: A value opportunity with an attractive dividend.
Corum (COO) $0.083
New management, completely new shareholder register, a company-making acquisition and a renewed focus should see this established and profitable pharmacy software company accelerate dramatically during 2021. Not often do you get the opportunity to buy a profitable, SaaS business at a PE ratio of c. 15x – this won’t last if management can execute on their strategy.
In short: Early days, but the bull case here is a potential multi-bag return on investment.
Australian Share Trading FAQ
Which stock trading site is best for beginners?
CommSec by Commonwealth Bank or CMC Markets Stockbroking are the most popular trading platforms for beginners. Their trading fees are roughly $20 per trade to buy and sell shares online.
How to invest in shares?
Investing in shares can be done via a stock broker or by yourself using an online trading platform.
How to buy shares in australia?
Trading shares in Australia is relatively easy. You simply need to set up a trading account with your bank or an online trader like CommSec. Once you have deposited funds into your trading account you will be able to buy and sell Australian shares.