Even though investors refer to it all the time, past performance really has nothing to do with the future fortunes of a stock.
Shares themselves have no memory so they don’t care where they came from. It only matters what will happen from now.
So saying a particular stock is bound to head up because it’s dipped so much in recent times is as irrational as saying it is due to crash because it has outperformed.
A perfect example of this is seen in the two stock tips that First Sentier Investors portfolio manager Alison Thai gave this week.
She is forecasting both will have a wonderful 2023, but their share prices have seen vastly different fortunes over the past 12 months. One lost 60% and the other dropped only 5.4%.
Two criteria that make an ‘attractive investment’
Among technology companies, Thai knows exactly what she’s looking for.
“Companies that have critical and scalable software while also maintaining strong unit economics, that’s going to be an attractive investment,” she said in a First Sentiers video.
Virtual network services provider Megaport Ltd (ASX: MP1) fits the bill for her.
The stock is now going for a heavy discount, after devaluing 60% over the last year.
The stickiness of its offerings is alluring for Thai.
“They’ve been able to prove that their customers tend to add on more products and services over time,” she said.
“What this means is that Megaport offers this nice organic growth trajectory because revenue per customer is increasing over time.”
Add new customer signings to that, and Thai reckons the business offers high revenue growth, is nearing earnings break-even, and runs in a capital-light manner.
Using the same criteria outside of tech, Thai favours insurance broker AUB Group Ltd (ASX: AUB).
She believes the business will benefit from “a buoyant premium rate environment”.
“But they don’t need to take on the underwriting risk that an insurance company would,” said Thai.
“This means they offer solid earnings growth without the capital intensity of an insurance company.”
The AUB share price has risen a phenomenal 43% since a trough last June, and currently hands out a dividend yield of 2.35%.
Both of Thai’s tips are heavily favoured by her peers too.
According to CMC Markets, eight out of 10 analysts covering AUB shares reckon it’s a strong buy. Eight out of 12 analysts surveyed say the same for Megaport.
The post Watch these 2 ASX 200 growth shares take off this year: expert appeared first on The Motley Fool Australia.
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Motley Fool contributor Tony Yoo has positions in Megaport. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport. The Motley Fool Australia has recommended Aub Group and Megaport. 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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