I think some ASX growth shares are now looking very attractive after the volatility we’ve seen this year.
Lower prices could mean better value for businesses that have growth planned for the long-term.
These three potential investments look like attractive propositions to me:
Xero Limited (ASX: XRO)
Xero is one of the largest ASX tech shares, I also think it’s one of the highest quality businesses.
It has an exceptionally high gross profit margin. In the FY22 result, its gross margin was 87.3%, an increase from 86% in FY21.
The company is achieving global growth and it can use the rapidly-growing gross profit to invest in areas, like marketing and subscriber tools, which can lead to more growth. FY22 operating revenue increased 29% to almost NZ$1.1 billion and subscribers rose 19% to 3.27 million.
While some investors may prefer that Xero generate more profit in the shorter term, I like that Xero said it will “continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated…to drive long-term shareholder value”.
Despite a 9% jump in the Xero share price on Friday, the ASX growth share is still down more than 40% this year, so it seems quite a bit cheaper.
Betashares Global Quality Leaders ETF (ASX: QLTY)
As the name implies, I think this exchange-traded fund (ETF) could be a quality idea.
There are four metrics that a company needs to rank well on to be potentially selected for this portfolio: a high return on equity and profitability, low amounts of debt, and earnings stability.
There are around 150 names in the global portfolio. The biggest weighting is 2.3%, so no business has a large position – there is diversification.
Some of the names in the portfolio include Johnson & Johnson, Pfizer, Meta Platforms, Novo Nordisk, Unitedhealth, Visa, AIA, Texas Instruments, Accenture, and Adobe.
The annual management fee of the ETF is 0.35%. This is relatively low compared to plenty of active fund managers that may charge 1% or more.
The QLTY ETF has seen a decline of around 20% since the beginning of the year, despite those quality metrics.
Australian Ethical Investment Limited (ASX: AEF)
Australian Ethical is a fund manager that wants to provide investors with investment products that align with their ethics.
The ASX growth share avoids areas such as tobacco, coal miners, and gas. Instead, Australian Ethical invests in businesses that are connected by its conviction that “their success is linked to society’s prosperity and the planet’s wellbeing”.
It is certainly true that the current market volatility is not helpful for the short-term direction of the company’s funds under management (FUM).
However, its FUM does continue to grow on longer-term time scales. Since the start of FY22, FUM has risen by 13% to $6.83 billion. During the three months to March 2022, the fund manager saw FUM inflows of around $0.24 billion.
Australian Ethical said that its positive net inflows for the quarter were driven by ongoing “strong” superannuation contributions. This includes the regular superannuation guarantee contributions together with rollovers from new customers joining.
Over the long-term, I think its FUM can keep growing, with a reduction of the management fees being a positive for attracting more investors.
I think the Australian Ethical share price is now more attractive after falling almost 60% since the start of 2022.
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*Returns as of January 12th 2022
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Adobe Inc., Australian Ethical Investment Ltd., Meta Platforms, Inc., Visa, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and has recommended the following options: long January 2024 $420 calls on Adobe Inc. and short January 2024 $430 calls on Adobe Inc. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Adobe Inc., Australian Ethical Investment Ltd., and Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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