3 Best ASX Shares To Buy Right Now [January 2022]

The best Australian shares to buy according to a bloke who knows a thing or two.

Video: DMARGE’s resident expert Luke Laretive shares his picks for the best 3 ASX shares to buy in January 2022

The following article has not been sponsored by any parties. The author, Luke Laretive, is our resident expert.

The pandemic whacked Australia’s economy harder than 2001 hit American airport security. But while Australia’s hospitality and travel industries continue to be devastated by border closures and lockdowns, the ASX, buoyed by a miraculous NASDAQ bounce back, has rallied harder than a supercar.

Now, almost two years after COVID-19 caused an en masse BASE jump, the ASX has bounced back hard. And we’re on the lookout for the best shares…

Related stories on DMARGE

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, having regained what it lost – and in some cases much more. 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 2022, 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, and few duds, but overall, Laretive’s picks have averaged a 65.6% return over the period (before dividends, franking credits and currency movements).

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.

Here are this month’s best shares and stocks.

January 2022

All figures in Australian dollars (1 AUD = 0.73 USD at time of publishing)

TPG Telecom (TPG) $6.26, $11.4bn market cap

TPG underperformed by 17% over the past 3 months, leaving the stock trading at a discount to its intrinsic value. As the economy and borders reopen, TPG could be a major beneficiary, with increased subscribers and growing average revenue per user as roaming returns. We think the sale of its tower assets is a catalyst, with an improving balance sheet and accelerating free cash flow likely to drive a re-rate.

In short: undervalued large cap with re-rate potential.

ARB Corporation (ARB) $46.14, $3.7bn market cap

We think it’s overly simplistic to view this high-quality business as ex-growth on the back of slowing car sales data alone. A more thorough investigation would uncover significant leverage to reopening on the eastern seaboard and longer-term growth drivers through partnerships and distribution opportunities in the US and Europe.  

In short:  an opportune time to build a position in this high-quality business.

Praemium (PPS) $1.38, $700m market cap

Netwealth (NWL) offered $1.50 per share for Praemium back in November, which management rightfully rejected. We can imagine a range of acquirers seeing Praemium as a strategic asset, not-least there market leading position in what we would argue is the fastest growth part of wealth management – separately managed accounts (shameless plug: we manage our Seneca Australian Shares SMA on the platform, +27.57% since inception).

In short:  it’s getting taken over, but not at $1.50

December 2021

All figures in Australian dollars (1 AUD = 0.71 USD at time of publishing)

Zip Co (Z1P) $4.34, $2.5bn market cap

The entire BNPL sector has de-rated, and it’s seen Zip’s valuation crash from 15x Price-to-Sales to 3x. US-based competitor Affirm (AFRM) has been the one exception, increasing its valuation multiple from 11 to 21x Price-to-Sales this year. At this price, Affirm could buy Zip at 7x P/S, or close to $9.60 per share, by issuing c.10% more shares and increase sales immediately by >30%. At 20x, it would a highly accretive move for Affirm shareholders, and give the company access to new markets, a whole new pool of talent and technology and undoubtedly, and most importantly, reduce their cost of capital.

In short:  Takeover target.

Corum Group (COO) 6.6cps, $39m market cap

Corum provide the software that handles point-of-sale, drug dispensing and head office management for Pharmacy groups. They made a game changing acquisition last year, acquiring Pharm-X, which is the dominant ordering, payments, and supplier gateway to the pharmacy industry. The significance of this acquisition has been missed by the market, with Corum now essentially control the buying data for most of a c.$22bn industry. We think this gives them a unique ability to add value through vertical integration coupling head office with ordering and payments. The board and shareholder register is elite and operating momentum is building. Corum recently penning agreements with key pharmacy groups like Terry White Chemists, Alive Pharmacy Group and Blooms the Chemist, among others, representing over 600 pharmacies.  

In short:  Exactly the sort of technology business (i.e., a profitable one exposed to a defensive industry) you want to own at this point in the cycle.

Spotify (SPOT) US$232, US$43bn

As cheap as it’s been and sitting right on technical support, now looks like as good an entry as investors could hope for. Spotify is leveraged to reopening (like Netflix, NFLX), as artists release new music ahead of concert dates/tours.  We are already seeing green shots in the 3Q results, with average revenue per user (ARPU) already starting to accelerate on the back of stronger than expected advertising growth and premium-user ads (all in the face of successful price increases!).  The company could be about to deliver multiple quarters of material growth in both revenues and profits.

In short:  Company is trading at a 46% discount to consensus price target.

November 2021

All figures in Australian dollars (1 AUD = 0.75 USD at time of publishing)

Vulcan Energy Resources (VUL) $10.81, $1.35bn market cap

For all those who feel like they ‘missed out’ on Vulcan, now might be the last opportunity to buy the stock under $1.5bn market cap. After a strong-on-hyperbole-weak-on-facts short report was released the stock has fallen from $14.50 back to $11.00. This is under the recent $200m placement price of $13.50 and an attractive entry price as the company continues to build out its suite of tier 1, globally significant financial and commercial partners.

In short: A motivated and incentivised management team executing on a globally significant project.

Heramed (HMD) $0.195, $35m market cap

Pregnancy monitoring device and software business which enables pregnant mothers and their chosen professionals to monitor foetal and maternal heart rate, blood pressure etc. with accuracy and confidence. HMD is engaged in paid pilots with the likes of Ramsay Healthcare and The Mayo Clinic and we see the next logical step as a potential full scale commercial partnership – a catalyst for significant share price appreciation in our view.

In short: SaaS + device health-tech with material upside potential from this market cap.

Ramelius Resources (RMS) $1.63, $1.3bn market cap

The gold market is bifurcated – stocks that trade on 7x and those that trade on 4x EV/EBITDA. The reason is generally to do with reliability and growth profile of production, as well as their operating costs and subsequently, margins. We think RMS is a 4x EV/EBITDA stock that could re-rate and join the likes of Northern Star and Newcrest. It looks too cheap to me and most analysts who cover the stock.

In short: the best value of the ASX listed gold producers.</p>

October 2021

All figures in Australian dollars (1 AUD = 0.73 USD at time of publishing)

Pilbara Minerals (PLS) $1.88, $5.5bn market cap

Capitalising on high spodumene pricing through solid operational performance and as a result, producing excellent cash flow. With the final investment decision on the proposed lithium hydroxide project in JV with POSCO expected by the end of October, a recent reserve upgrade at Pilgangoora that extended the mine life to over 25 years and with the stock trading at a >40% discount to spot NPV, there is not only value, but a range of potential positive catalysts to drive the stock higher.

In short: Large cap lithium exposure with significant valuation upside at spot prices.

Aura Energy (AEE) $0.22, $88m market cap

After a recent relisting and with uranium prices on the move upwards, Aura looks too cheap relative to peers given its low barriers and short time frame to get into production. We think the stock is unfairly discounted for its location (in NW Mauritania), which is an excellent, stable mining jurisdiction and while remote, access and mining the soft, shallow resource should be simple.

In short: One for the uranium bulls.

Nickel Mines (NIC) $0.94, $2.3bn market cap

The stock looks much too cheap given NIC is doubling production capacity at the time when Nickel demand is set to accelerate as a result of expanding battery production. Oh and, late last week, the Managing Director bought $500k worth of stock on market, which shows he’s got confidence in how the business is tracking.

In short: Leveraged exposure to what we see as rising Nickel prices.

September 2021

All figures in Australian dollars (1 AUD = 0.73 USD at time of publishing)

Integral Diagnostics (IDX) $4.54 per share, $908m market cap

Structurally supported by growing demand for diagnostic images (think CT, MRI, Xray et al), IDX is an opportunity at current prices after a 15% pull back on EBITDA margin pressure. I see this as temporary and a function of pandemic-induced operating conditions (i.e. labour shortage / wages) and like the strong, defensive growth profile of IDX (+12% organic growth last year). The fragmented industry structure also plays into their inorganic growth strategy (issue shares at 11x to buy a clinic for 5-8x EV/EBITDA, pretty simply arbitrage really).

In short: First time in a long time you can buy this business at these prices.

De.Mem (DEM) $0.30 per share, $66m market cap

Waste water treatment business reported a record half, revenues up 44% to $9.1m on record gross margins (34%). I’m expecting the business to go close to breaking even this year, with material leverage to every incremental sale over $20m per annum. A few big build, own, operate contract opportunities might get them there fast than expected. There are reportedly a handful in the pipeline.

In short: Under-owned, no research, misunderstood… for now.

Good Drinks Aus (GDA) $0.09 per share, $112m market cap

Fermentum, which owns Stone & Wood, just got sold to global beverage giant Lion for over $500m. Stone & Wood do about $72m in craft beer sales. Good Drinks Aus sells $89m in craft beer, but its only valued by the learned investors of the ASX at $112m.

In short: I’m just a humble stockbroker but even I can tell you something doesn’t add up here.

August 2021

All figures in Australian dollars (1 AUD = 0.73 USD at time of publishing)

ZipCo (Z1P) $7.73 per share, $4.3bn market cap

Afterpay (APT) has been taken over by Square (SQ.NYS) and we think ZipCo is next, but the uplift potential for shareholders is much more significant. Square paid 20x EV/Sales for APT, the sector trades on 15x and Zip currently trades on 7x, despite above-average growth, scale, management and talent.

We know Klarna are sneakily sitting on the Zip register with a c. 4.5% interest and are the likely buyer. Don’t be surprised if the Aussie banks are now thinking about Zip’s strategic value to them, with US-tech now in a position to threaten the big four. I can’t see Zip shareholders accepting anything less than a market multiple of 15x EV/Sales or c. $15 per share.

In short: 20% of Australian e-commerce checkouts go through BNPL, while in the US, there is less than 2% share-of-checkout – this BNPL-thing still has a long way to run and Zip is strategically positioned.

Mineral Resources (MIN) $61.33 per share, $11.3bn market cap

MinRes recently bought Red Hill Iron’s interest in the Red Hill Iron Ore JV (40%) for c.$400m. And while this might look like an expensive tenement package to the untrained eye, this management team have rarely (read: never) made a mistake and as such, I’m equating this to more like the Bucks drafting a raw Giannis Antetokounmpo or like when Facebook “overpaid” for Instagram. The upcoming AGM (10 Aug) might give us a bit more insight into what makes Red Hill so special. Throw this into the mix with a lithium business worth $6bn and a mining services business worth $3.5bn, it’s not hard to see the stock trading at $90.00 in the near future.

In short: A great management team executing in some of the most favourable commodity sectors (iron ore, lithium).

Incitec Pivot (IPL) $2.76 per share, $5.4bn market cap

Incitec Pivot is on track for a strong 2H21 performance. Management have rectified production and manufacturing, ensuring operations are back at full capacity, performing well and capturing full commodity upside. Ammonia and DAP prices are still rising and IPL should be able to capture these benefits in pure profit margin. Consensus is too low, by half.

In short: Trading on a PE of 13x FY22, the stock is way too cheap.

July 2021

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?”

June 2021

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.

Australian Share Trading FAQs

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.

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