2 high quality ASX shares to buy if the COVID-19 selloff gets worse

ASX shares took a bit of a tumble today. The S&P/ASX 200 Index (ASX: XJO) dropped by around 3%. I’ve got my eyes on some high quality ASX shares if the COVID-19 selloff gets worse.

Only time will tell whether this is the start of another extended decline for the ASX or whether it was just a temporary blip during the recovery.

If today’s drop does lead to another painful decline then I’ve got my eyes on these top ideas:

Share 1: Pro Medicus Ltd (ASX: PME)

On a day that the ASX dropped 3%, the Pro Medicus share price went up 2.7%. That’s an impressive performance.

I think Pro Medicus is one of the best ASX shares. But it’s also one of the most expensive.

It’s very rare to find a business on the ASX with an earnings before interest and tax (EBIT) margin of above 50%. In the FY20 half-year result it reported an EBIT margin of 50.2%. This means that a lot of new revenue can flow straight to the bottom line. This strong economic performance means Pro Medicus’ cash reserves and dividend can increase at a fast rate. It also doesn’t have any debt.

The ASX share continues to win large international contracts. Each new client it wins gives it a stronger reputation to win over the next client in the pipeline.

I think it speaks volumes that Pro Medicus initiated a share buyback whilst other ASX shares were doing dilutive capital raisings during the COVID-19 share market crash.

However, I personally wouldn’t want to consider buying Pro Medicus shares unless it dropped under $22.50 again.

Share 2: Australian Ethical Investment Limited (ASX: AEF)

Australian Ethical’s share price fell 7.2% today. The ethical fund manager has been very volatile over the past nine months due to the bushfires and the recent coronavirus crash.

I think Australian Ethical is a very promising ASX business. Before COVID-19 it was rapidly growing funds under management (FUM).

Fund managers are very scalable because it doesn’t really cost much more to manage $2.1 billion compared to $2 billion. The early superannuation withdrawal and the decline of the share market won’t have helped the ASX share’s FUM. But that will hopefully just be a temporary setback for Australian Ethical.

If it can keep attracting more clients and benefit from rising superannuation contributions then this ASX share could be one to watch. I like that it doesn’t have any debt and it continues to grow its cash balance.

However, I’m waiting for a share price under $4 to buy shares.

Foolish takeaway

I may be waiting a long time to buy Pro Medicus and Australian Ethical shares. They’re two of the most promising ASX shares out there. I just want to buy them for a price that’s quite a bit cheaper.

More reading

• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• These were the worst performers on the ASX 200 last week
• ASX 200 down 0.35%: UBS upgrades NAB and Westpac, Qantas soars again
• These ASX healthcare shares could be long term market beaters
• Why Austal, Evolution, Newcrest, & Pro Medicus are tumbling lower

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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