Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Forager research analyst Chloe Stokes tells us the shares that made her a bucket of money during the recent US short squeeze, plus a couple of regrets.

 

Investment style

The Motley Fool: What’s your fund (Forager International Shares Fund)’s philosophy?

Chloe Stokes: Forager’s philosophy is valuation based. We try to buy stocks where the underlying business is going to give us above-average returns over a long period of time. 

We think of ourselves as value investors, but people tend to pigeonhole value investing as buying businesses trading at a low price-earnings multiple. We think that you can pay a high multiple for certain businesses and still make good money over time.

MF: Right, as long as you think that multiple increases over time?

CS: Well, as long as you think it’s justified by the cash flows of the business and the growth that you’re expecting.

MF: Fair enough. So by that philosophy, a lot of shares can be considered both value and growth, would you say?

CS: Exactly. As an analyst, it’s great because it gives us the opportunity to look at stocks across both growth and value categories, depending on the opportunity set that we see in the market at the moment.

Buying and selling 

MF: What do you look at closely when considering buying a stock?

CS: We try to look at everything closely. We want to get to know the business as well as possible. One thing that we find really interesting and spend a lot of time on is understanding the bear thesis on the stock.

So thinking about why the stock is priced at where it is today and what we think that is different from the wider market view. This can be much easier in smaller liquid stocks where the answer might be as simple as that no one else is really taking the time to study the business. In larger stocks, it gets much harder, but it’s always useful to understand what you think the market’s getting it wrong and why you think you might be right.

MF: How small do you get when it comes to small stocks?

CS: It really depends… In the international fund, I guess one of our more illiquid stocks is Hallenstein Glassons Holdings Limited, which is listed in New Zealand. That’s at about NZ$450 million market cap, which means if we want to get out of our position [it’s] going to take us quite a while.

MF: I saw your experience with Bed Bath & Beyond Inc on the back of the GameStop Corp short squeeze a couple of weeks ago. That must’ve been a fantastic ride for you guys.

[Ed: Stokes’ team doubled its money in 2 days during the chaos.]

CS: Yeah. It’s definitely been one of the more exciting times to work in markets.

It’s not often my friends want to talk to me about my job, but when short-selling is all over social media, and regular people are making millions of dollars very quickly through stocks, suddenly I’m quite interesting!

MF: What triggers you to sell a share?

CS: A number of things. A broken thesis, significant price appreciation, or better opportunities elsewhere. Lately, we’ve been selling a lot of businesses that we really like because stock prices have increased so dramatically.

That doesn’t always mean selling out of an entire position. We are always thinking about the right target rating for each stock in our portfolio. That might be different to the target weight last week, based on changes in the business, the stock price, or just the rest of the portfolio.

MF: You demonstrated a few weeks ago for that US luxury retailer?

CS: Farfetch Ltd.

MF: That’s the one. You executed that strategy, didn’t you? You held on to some and sold off some.

CS: Exactly. 

Sometimes we’ll be trading every day, but small bits trimming positions based on what I was just talking about: stock price movements, something that’s happened in the business, maybe one stock’s gone up really significantly, and the rest of the portfolio hasn’t moved. 

So we just weigh it up against the other opportunity.

Looking forward

MF: Where do you think the world is heading at the moment?

CS: That’s a good question. With the vaccine rolling out globally, I hope it’s heading towards a bit more normality. It’s a very interesting time people will finally see which of the COVID-induced changes are here to stay. Is corporate travel over forever? Will consumers go back to brick-and-mortar retail stores? How many organisations will actually let their employees continue to work from home once all this is over?

In terms of equity markets, I think we’re in a pretty good position. Interest rates are low, consumer savings rates are high, and people have been cooped up at home for a long time. There are pockets of the market where this is already priced in and others that are overvalued for sure. But there are also plenty of unloved or forgotten stocks. 

So lots of great opportunities for active managers.

MF: You mentioned a couple of sectors where there are question marks on how well they can recover, like corporate travel. Which sectors is your team optimistic about, and which sectors are you more pessimistic about?

CS: I don’t think I really have a sector-based view. I mean, we definitely are exposed to a reopening in terms of travel and retailers as we would’ve, you would’ve heard us speaking about. But it’s not like [we’re] sitting there every day trying to make sector bets. We try to have a well-diversified portfolio.

Some stocks are exposed to the reopening, others that have done really well out of COVID. So we just want to have a well-diversified portfolio across a number of different sectors and the reopening sectors.

Definitely bottom-up fundamental analysis on every stock.

MF: Are you most of the time fully invested, or do you have some cash in hand?

CS: Right now, we hold around 5% cash. Five to 10% is a fairly normal level for us. 

One of the key features of our fund is our flexibility. We can hold as much cash as we like. So I mentioned 5% to 10% is fairly normal, but we can hold less, and we can hold more. And historically have used that flexibility at various times.

Overrated and underrated shares

MF: What’s your most underrated stock at the moment?

CS: My most underrated stock is Boohoo Group PLC, a UK based online retailer of women’s clothing. The stock is being punished due to governance concerns and supply chain issues. We think the management team is focused on correcting both of those things. 

I just see common signs of an extremely fast-growing business and not a systemic issue at Boohoo. Looking at the business, Boohoo has increased revenue at an average rate of 55% per year over the past 8 years. And they generated almost £1.5 billion of revenue in the past 12 months. They’ve done so profitably and without financial debt. 

So we think the underlying business is excellent and that the issues I mentioned before are overweighted in the stock price. The stock’s being unfairly punished for [past] sins and the business’ well on its way to correcting.

MF: When did you guys buy in?

CS: We started buying in September.

The [public relations] issue started in July. So we bought once they’d already started being punished for it. I think we’re up kind of 20% or something like that.

We’ve done reasonably well out of it, but we still think that those issues are heavily weighing on the share price. It’s an amazing growth business.

MF: What do you think is the most overrated stock at the moment?

CS: That’s a hard question. I think it’s easy to call a stock overrated when you haven’t done enough work on it, to understand the business and the opportunity. I mean, think about how many people would have called Facebook Inc or Alphabet Inc overrated or overvalued 5 to 10 years ago. And because we have such a broad mandate, the universe of stocks we can pick from is huge.

So that means if I don’t feel like a stock looks cheap or I have a particular insight fairly quickly, I’ll leave them to the next opportunity. I never really do the work on the stocks that I might think are overrated. 

We just try not to pay too much attention and focus on the stocks that are right for our portfolio. 

Looking back

MF: Which stock are you most proud of from a past purchase?

CS: A lot of stocks come to mind. One you were speaking about before was Farfetch. Farfetch did really well for us in a short amount of time. It’s a global platform for the luxury industry. When I was doing work on the stock in June last year, there were a lot of question marks on the business. I mean, from afar, it was just another online luxury retailer with no real competitive advantage and the threat of Amazon.com Inc lurking at every corner.

I had the view that the Farfetch platform actually added a lot of value to not only the luxury brands but to the industry as a whole. For that reason, I was confident it would end up as the dominant platform in the industry. It didn’t take long for some great results to convince the rest of the market of that.

It was great watching the thesis play out over the next couple of months. And we made a lot of money over just 6 months, and we have sold our entire stake since. 

Yeah, it’s not our usual time horizon, and I’m not proud of the time it took, but [I’m proud of] having the insight before it was widely appreciated. I would’ve loved to have been able to own the business for years to come, but the opportunities that are out there at the moment it’s just too compelling.

MF: As they say, you don’t want to fall in love with a stock, do you?

CS: Exactly. Exactly. You have to try and avoid that at all costs.

MF: What is your usual investment horizon?

CS: It varies by company. It’s probably a couple of years on average, but in times like this, we’re selling much faster than usual. No stocks keep going up. 

Ideally, we’d like to buy a stock and hold it for 3 to 5 years or even longer, but we can only do that if the business is performing in line with that basis and the price isn’t going up too much to the point where the stock becomes overvalued.

We buy stocks prepared to hold them forever, but our experience has been that if the value hasn’t turned up on the share price in 3 to 5 years, we’ve probably got something wrong.

MF: Yeah, it’s crazy times at the moment, isn’t it? Bed, Bath Beyond you only had for 10 days?

CS: Yes, but we didn’t actually sell that entire holding.

What we did was we were trimming our position at the highs in late January, and we realised gains almost equal to our initial investment. What we’re left in is a bet on the turnaround thesis at a cost of close to zero.

MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.

CS: Definitely. For me personally, my biggest regret came during the meltdown in March. We saw brilliant companies like Nike Inc and Lululemon Athletica Inc down more than 30% in a couple of days. Those stocks would have been excellent investments at market prices, but because I never thought they were cheap enough to invest any time into, I didn’t have a thesis ready.

One great lesson has come out of it, though. It’s that we need to have a diverse bench list of stocks with a thesis and a fair evaluation, including high-quality stocks that wouldn’t usually meet your valuation hurdle. I mean, it might seem like a waste of time, but you never know when the opportunity could come along to own a high-quality business at a more than reasonable price. I wouldn’t want to miss out on owning some of my favourite businesses if the opportunity presents itself again. 

I’ll give you another one because I always see people talking about errors of omission, and we obviously make errors of commission too.

One example of that is Babcock International Group PLC, a UK-listed engineering services company. We started buying the stock in May 2018 at around £7 per share. 

Our thesis was pretty simple – we thought Babcock was having a tough year but would quickly return to its history of high margin growth. Babcock’s management team kept reporting decent headline numbers and then running exceptional items through the accounts. But they’re not exceptional if they happen every reporting period!

So what we did was we put a couple of stakes in the ground, and we made the decision to sell when the business didn’t meet them. We sold up completely at around £4 in April 2020, and we agreed to plant the capital into new ideas.

MF: With your first example, that’s a good lesson for even retail investors to have a target list of shares you want to buy up if the market plunges, doesn’t it? 

CS: Definitely. We always have a watch list, but I think just thinking about those super high-quality companies when you love the business, but it’s just too expensive. Those are great stocks to have on a watch list.

MF: It’s good homework to do, even though it might feel so hypothetical in boom times.

CS: Exactly, exactly. But then you go through something like March, and it’s always so upsetting not being able to buy them because you just hadn’t done work.

More reading

• 2 outstanding ASX growth shares to buy
• Up 35% in February, can the Sezzle (ASX:SZL) share price go higher?
• 2 quality ASX dividend shares to buy this week
• Is the ANZ (ASX:ANZ) share price a buy?
• 5 things to watch on the ASX 200 on Monday

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Tony Yoo owns shares of Alphabet (A shares) and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Facebook, and Nike and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, Facebook, and Nike. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Australian share market is home to a good number of shares that are growing at a strong rate.

Two exciting ASX growth shares that are worth looking closely at are listed below. Here’s what you need to know about them:

Megaport Ltd (ASX: MP1)

Another ASX growth shares to look at is Megaport. It is a leading global provider of elastic interconnection services across data centres globally.

Megaport’s networking equipment is installed in hundreds of data centres around the world, which has created a software layer that provides an easy way for users to create and manage network connections. This means that through the Megaport network, users are able to create and run a global network with or without the need for physical infrastructure.

Earlier this month Megaport released its half year results, which revealed Monthly Recurring Revenue (MRR) of $6.3 million. This was up an impressive 37% year on year and annualises to revenue of $75.6 million.

The team at Goldman Sachs were pleased with this half year update. In response to it, the broker put a buy rating and $15.55 price target on Megaport’s shares. Goldman feels the migration to public cloud infrastructure is likely to remain a strong theme and expects Megaport to benefit greatly from it.

Nuix Limited (ASX: NXL)

Another ASX growth share to look at is Nuix. It is a leading provider of investigative analytics and intelligence software. Through its Discover, Workstation, and Investigate platforms, users are able to transform massive amounts of messy data from emails, social media, communications, and other human-generated content into actionable intelligence. This means they can search it, filter it, visualise it, analyse it, and find the truth it holds.

The company’s software has been used in a number of important investigations. This includes the Panama Papers and the Banking Royal Commission. Current users include AIG, Airbus, Amazon, BDO, HSBC, Samsung, and Unilever.

Demand has been strong for its services and led to Nuix reporting a 25.9% increase in total revenue to $175.9 million in FY 2020. This revenue is largely from subscriptions, with subscription revenues now accounting for 88.7% of its total revenue.

One broker that is a fan is Morgan Stanley. It currently has an overweight rating and $11.00 price target on the company’s shares.

More reading

• Top brokers name 3 ASX shares to buy next week
• Why brokers rate these 4 ASX shares a buy this month
• Is HyperOne listed on the ASX?
• 2 ASX tech shares to buy for cloud computing exposure
• 2 outstanding ASX growth shares that could be strong buys

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Nuix Pty Ltd. The Motley Fool Australia has recommended MEGAPORT FPO and Nuix Pty Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Sezzle Inc (ASX: SZL) share price has risen by around 35% during February so far.

Indeed, many businesses within the buy now, pay later industry have been performing strongly including Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P) and Humm Group Ltd (ASX: HUM).

The company has made a few different announcements over the last couple of months, including its 2020 fourth quarter update.

What did Sezzle announce recently?

In the fourth quarter of 2020, Sezzle said that underlying merchant sales (UMS) grew by 40.6% quarter on quarter, or 205.4% year on year, to A$419.8 million despite all the impacts of COVID-19.

Sezzle’s merchant fees grew by 32.6% to A$22.5 million quarter on quarter, it represented year on year growth of 195.6%. However, the merchant fees as a percentage of UMS was 5.4%, which was down 32 basis points quarter on quarter and down 18 basis points year on year.

The company also continues to add a large number of consumers and merchants. Active consumers went up 143.9% year on year to 2.23 million and active merchants rose 166.6% year on year to 26,690.

The final statistic that Sezzle reported was that the active consumer repeat usage improved again to 89.8%, up 75 basis points quarter on quarter and up 608 basis points year on year.

The next announcement that Sezzle made was the signing of a US$250 million receivables warehouse facility with Goldman Sachs and Bastion to support the expansion of the company’s business in the US and Canada.

Sezzle’s new 28-month facility helps the company’s balance sheet, replaces its US$100 million receivables facility and extends Sezzle’s funding facility well into 2023. Its existing facility’s maturity was May 2022. This new facility will also lower the company’s cost of funding, which will provide a positive effect on Sezzle’s net transaction margin over time.

The final announcement was that Sezzle signed an agreement with Discover that will allow Sezzle to work with selected merchants on the Discover Global Network in offering consumers additional payment options. Discover is a digital banking and payments services company. The Discover Global Network has more than 48 million merchant acceptance locations and two million ATM and cash access locations around the world.

Is the Sezzle share price a buy?

Sezzle shares are currently rated as a buy by broker Ord Minnett.

The broker thinks that Sezzle has been a leader in the ASX buy now, pay later industry for a while. Sezzle has been benefiting from good network effects as well as continuing strong uptake from customers.

Ord Minnett rates the Sezzle share price as a buy. However, the target share price is $11 for Sezzle, which means the current upside is in low single digits in the broker’s view.

More reading

• Sezzle (ASX:SZL) share price tumbles despite new agreement
• Why is the Splitit (ASX:SPT) share price underperforming Afterpay and Zip?
• Why the Sezzle (ASX:SZL) share price is charging 7% higher today
• Zip (ASX:Z1P) share price is soaring 13%, smashing another record high
• These ASX shares are helping this fund manager smash the market

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 ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Humm Group Limited and Sezzle Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Up 35% in February, can the Sezzle (ASX:SZL) share price go higher? appeared first on The Motley Fool Australia.

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Are you looking for some top ASX dividend shares to add to your income portfolio? 

Then you might want to take a look at the dividend shares listed below. Here’s what you need to know about them:

National Storage REIT (ASX: NSR)

The first ASX dividend share to look at is National Storage. From over 190 locations across the ANZ region, it tailors self-storage solutions to residential and commercial customers.

While 190 locations may sound like a large number, management still sees plenty of room for growth through acquisitions and developments. So much so, it recently revealed that since the end of FY 2020, National Storage has completed eight acquisitions for $139 million and is working to complete a number of development projects.

It also reiterated that it expects to report underlying earnings per share of 7.7 cents to 8.3 cents in FY 2021 and plans to payout 90% to 100% to shareholders.

Based on the middle of both guidance ranges and the current National Storage share price, this represents a 4.2% yield.

Rural Funds Group (ASX: RFF)

Another ASX dividend share to look at is Rural Funds. It is the owner of a diverse portfolio of high quality Australian agricultural assets that are leased to highly experienced operators.

Last week it released its half year results and revealed adjusted funds from operations (AFFO) per unit of 6.6 cents. This means it is on track to achieve its full year forecast.

It also revealed that its ultra-long weighted average lease expiry (WALE) metric had increased further. It was up from 10.9 years to 11.1 years over the last six months.

In addition to this, management reaffirmed its FY 2021 distribution guidance of 11.28 cents per share and unveiled its FY 2022 guidance of 11.73 cents per share.

Based on the current Rural Funds share price, this will mean yields of 4.8% and 5%, respectively.

More reading

• 3 ASX shares that keep growing the dividend every year
• Did you miss the Rural Funds (ASX:RFF) 94% profit growth in HY21?
• 2 reliable ASX dividend shares to buy for your income portfolio
• 2 quality ASX dividend shares to buy and hold
• 3 top ASX dividend shares to buy

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Is the Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price a buy right now?

Some brokers have had their say on the matter including Credit Suisse and Morgan Stanley after the big four ASX bank released an update.

ANZ told investors how the bank performed the first three months of its FY21:

ANZ’s first quarter performance

The major bank said that it generated statutory profit after tax of $1.62 billion for the first quarter. It also said that cash profit from continuing operations of $1.81 billion was up 54% on the average of the last two quarters of FY20.

However, when looking at the continuing cash profit before credit impairments, large items and tax, it was down slightly.

ANZ said that the total provision result in the three months to 31 December 2020 was a net release of $150 million. This comprised an individually assessed provision (IP) charge of $23 million and a collective provision (CP) release of $173 million. The release of CP is equivalent to around 10% of the $1.7 billion set aside during FY20.

The major bank said that the CP release is prudent when balancing the improvement in the economic outlook at the end of the December quarter with the level of ongoing uncertainty.

ANZ also said that its Australian loan book still had 15,000 active house loans still being deferred due to COVID-19, being represented by around $6 billion. This has fallen from 96,000 loans worth $33 billion. Of the 81,000 housing loan accounts that have completed their deferrals, 98% have returned to repayment, 1% has been restructured and 1% has been transferred to hardship.

The big four ASX bank said that the APRA level 2 common equity tier 1 (CET1) capital ratio had risen to 11.7%, up from 11.3% at September 2020 and 10.8% at March 2020.

ANZ CEO Shayne Elliott said:

ANZ is well positioned heading into the remainder of 2021 with good momentum in our core activities. The work done to simplify and de-risk the business over the past five years set us up well and we have the capital, liquidity and operational capacity to continue to support our customers and the broader economic through what remains a volatile period.

What do brokers think of the ANZ share price?

The brokers are pretty unanimous that ANZ shares look like a buy.

Credit Suisse said that ANZ’s cash earnings were a lot better than expected, with a stronger net interest margin (NIM) and a good balance sheet. A highlight was the increase in the ANZ market share in home loans in Australia.

Based on this result, ANZ decided to increase its expectations of ANZ’s profit by 40% in this financial year, as well as a mid single digit increase of underlying profit.

ANZ is the big four bank that the broker likes the most. It has a share price target for ANZ of $29.50.

Morgan Stanley was also impressed by the ANZ update, with areas like revenue and capital better than expected. Morgan Stanley thinks that the outlook is good for ANZ with its control of costs, lower loan bad debts and a good trend for the margin.

More reading

• 2 of the best ASX 200 results from last week
• Why the Ainsworth (ASX:AGI) share price surged 15% today
• Brokers name 3 ASX shares to buy right now
• Why the ANZ (ASX:ANZ) share price is storming higher today
• ASX 200 up 0.2%: ANZ and CSL impress, Fortescue declares huge interim dividend

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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On Friday the S&P/ASX 200 Index (ASX: XJO) finished the week with a very disappointing decline. The benchmark index fell 1.35% to 6,793.8 points.

Will the market be able to bounce back from this on Monday? Here are five things to watch:

ASX futures pointing lower

The Australian share market looks set to start the week in the red. According to the latest SPI futures, the ASX 200 is expected to open the week 11 points or 0.15% lower this morning. This follows a mixed end to the week on Wall Street on Friday night. That saw the Dow Jones trade flat, the S&P 500 fall 0.2%, and the Nasdaq index up slightly.

Oil prices sink lower

Energy producers Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could start the week in the red after oil prices sank lower on Friday night. According to Bloomberg, the WTI crude oil price fell 2.1% to US$59.24 a barrel and the Brent crude oil price fell 1.6% to US$62.91 a barrel. This led to oil prices having their first negative week in three weeks.

NIB half year results

The NIB Holdings Limited (ASX: NHF) share price will be on watch today when it hands in its half year results. According to a note out of Morgans, its analysts expect the private health insurer to report an underlying profit of $82 million and cash earnings of $85 million. This is expected to lead to NIB declaring a 10 cents per share fully franked interim dividend.

Gold price pushes higher

Gold miners Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be on watch after the gold price edged higher on Friday. According to CNBC, the spot gold price rose 0.15% to US$1777.40 an ounce. The gold price dropped to a seven-month low last week amid rising treasury yields.

Costa results

This morning investors will be watching the Costa Group Holdings Ltd (ASX: CGC) share price when it hands in its FY 2020 results. Analysts at Morgans believe there is upside risk to its net profit after tax forecast of $52.2 million and the market consensus of $48.1 million. It notes that retail demand and pricing has been favourable across much of its domestic business.

More reading

• 5 things to watch on the ASX 200 next week
• 2 ASX 200 shares to buy for growth
• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• ASX 200 sinks 1.3%, Cochlear soars, TWE sours

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia has recommended NIB Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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When looking at growth shares, I like to focus on ones that have long runways for growth. This is because these companies have the potential to generate strong long term returns, allowing investors to benefit from compounding.

Three ASX growth shares which have been tipped for big things in the future are listed below. Here’s why they are highly rated:

Kogan.com Ltd (ASX: KGN)

This ecommerce company could be worth a look due to the continued rise in online shopping. In addition to this, its expansion into potentially lucrative verticals, the growing popularity of Kogan Marketplace, and recent acquisitions should support its growth in the coming years.

Although Kogan’s shares have surged higher over the last 12 months, analysts at Credit Suisse believe they can still go higher. The broker currently has an outperform rating and $21.08 price target on its shares.

Pushpay Holdings Group Ltd (ASX: PPH)

Another highly rated ASX growth share to consider is Pushpay. It is leading donor management and community engagement platform provider with a focus on the faith sector. Pushpay has been growing at a rapid rate in FY 2021 and expects to achieve full year operating earnings of US$56 million and US$60 million. This will be up a massive 123% to 139% year on year.

Positively, this is still scratching at the surface of its addressable market in the United States, which gives it a long runway for growth over the 2020s. Management is aiming to win a 50% share of the medium to large church market. This slice is estimated to be worth US$1 billion in revenue per annum at present.

Analysts at Goldman Sachs are positive on the company. They have a conviction buy rating and $2.59 price target on its shares.

Xero Limited (ASX: XRO)

A final ASX growth share to look at is this cloud-based business and accounting software provider. Despite the pandemic’s impact on small businesses, Xero has continued to perform strongly in FY 2021. This has gone down well with analysts at Goldman Sachs. They were impressed with its performance in the first half and believe it can still grow materially over the next decade and beyond.

It currently has a buy rating and $157.00 price target on its shares. Goldman believes Xero can achieve a 2030 subscriber footprint of 7.4 million and generate NZ$3.4 billion in annual revenue.

But even better, the broker doesn’t expect its growth to stop there. Its analysts see opportunities for Xero to monetise its app ecosystem and drive multi-decade strong growth.

More reading

• Got cash to invest? Here are 2 ASX shares to buy
• Why the Openpay (ASX:OPY) share price is surging higher today
• One year on and 50% up, the All Technology Index is booming
• 3 outstanding ASX growth shares to buy today
• 2 exciting ASX tech shares to buy

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Do you have some cash to invest? There are some ASX shares that may be worth looking into at the moment.

Share prices are always changing, so a business can become good value if it falls back a bit.

However, businesses that are falling can be called ‘falling knives’ because you don’t know how far they’re going to fall. Some businesses have growing profits but – at the moment – declining share prices, like these two:

Kogan.com Ltd (ASX: KGN)

The Kogan.com share price has fallen by around 25% since 25 January 2021.

If you don’t know much about Kogan.com, it’s an e-commerce business where a large number of different products and services are sold such as TVs, computers, phones, devices, clothing, furniture and cars. Services that are sold include mobile plans, insurance and energy.

The ASX share has seen elevated levels of demand ever since COVID-19 came along. Kogan.com recently gave a trading update for the first six months of FY21.

It said that gross sales grew by more than 96% and gross profit increased by more than 120%. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 140% and adjusted EBITDA grew by 175%.

It ended the period with $78.9 million of cash. It also had 3 million active customers for the Kogan.com business and another 719,000 active customers for the Mighty Ape business. Mighty Ape is a New Zealand e-commerce business that Kogan.com recently acquired. 

Kogan.com founder and CEO Ruslan Kogan spoke of the focus of the business to keep delivering growth:

We are investing into building strong customer relationships by expanding our logistics capability, our marketing reach and our systems and infrastructure – giving us the foundation to continue delighting customers as the business further scales.

Looking at the current Kogan.com share price, it’s valued at 22x FY23’s estimated earnings according to Commsec.

Magellan Financial Group Ltd (ASX: MFG)

Magellan is a funds management business that has around $100 billion of funds under management (FUM). The Magellan share price has fallen by 10% since 15 February 2021. 

It has a few different investment strategies, with international equities and infrastructure equities being the main two. Magellan also has an Australian funds management division as well.

Morgans is one of the brokers that likes Magellan at the moment, with the fund manager beating the broker’s expectations with its FY21 half-year result. The average FUM growth was essentially in line with the management fee increase.

The ASX share’s near-term prospects are expected to be dictated by the direction of the market as well as its ability to generate performance fees.

However, Morgans is attracted to Magellan’s new product launches and good balance sheet, plus the principal investments, for long-term growth. Two of those new investments within the parent Magellan company include FinClear and Barrenjoey, the investment bank which has been attracting a lot of talent to the new outfit.

Morgans is expecting Magellan to generate $2.28 of earnings per share in FY21, which means it’s valued at 20x FY21’s estimated earnings.

The broker has a share price target of $58.26 for Magellan.

More reading

• Why the Openpay (ASX:OPY) share price is surging higher today
• One year on and 50% up, the All Technology Index is booming
• 3 outstanding ASX growth shares to buy today
• 2 of the best ASX growth shares to buy now
• Why the Kogan (ASX:KGN) share price is charging higher today

Tristan Harrison owns shares of Magellan Financial Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Last week saw a number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

Afterpay Ltd (ASX: APT)

According to a note out of Morgan Stanley, its analysts have retained their overweight rating and lifted their price target on this payments company’s shares to $170.10. The broker notes that buy now pay later (BNPL) providers have been growing very strongly despite increasing competition. The broker believes this bodes well for Afterpay’s future growth, especially given its industry-leading repeat usage. In addition to this, it sees opportunities for Afterpay’s growth to accelerate in the future as its builds out its offering. The Afterpay share price ended the week at $151.92.

Westpac Banking Corp (ASX: WBC)

Analysts at Morgans have retained their add rating and lifted their price target on this banking giant’s shares to $27.50. According to the note, Westpac delivered a first quarter result well ahead of the broker’s expectations. Morgans was particularly pleased with the bank’s net interest margin, which has improved since the second half of FY 2020. In light of this strong start to the financial year, the broker has lifted its earnings estimates and price target accordingly. The Westpac share price last traded at $24.09.

Whispir Ltd (ASX: WSP)

A note out of Ord Minnett reveals that its analysts have upgraded this cloud-based communications platform provider’s shares to a buy rating with a $4.53 price target. This follows the release of a first half result which was in line with its expectations. Whispir reported a 29.2% increase in its Annualised Recurring Revenue (ARR) to $47.4 million for the half. Ord Minnett believes that Whispir is well-placed to continue its strong growth over the medium term. The Whispir share price ended the week at $4.20.

More reading

• Is the Westpac (ASX:WBC) share price a buy?
• 5 things to watch on the ASX 200 next week
• Here’s why the Afterpay (ASX:APT) share price is storming 6% higher today
• Why Cochlear, Goodman, Lovisa, & Whispir shares are surging higher
• Why the Whispir (ASX:WSP) share price is surging 10% higher today

James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Whispir Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Whispir Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are a number of smaller businesses on the ASX that aren’t well known but may be able to make good returns for investors.

It is usually easier for a business to double from $500 million to $1 billion than it is to go from $5 billion to $10 billion because of the difficulty of doubling bigger and bigger numbers.

That’s why these ASX growth shares could be worth thinking about:

City Chic Collective Ltd (ASX: CCX)

This business is a global retailer of plus-size clothes, footwear and accessories for women. Not only does City Chic have a large network of retail stores across Australia and New Zealand, but it also has wholesale agreements in the northern hemisphere and a website in the US.

City Chic is liked by brokers such as Macquarie Group Ltd (ASX: MQG) and Morgan Stanley.

Macquarie thinks that City Chic is going to report that it’s had a solid period of operating over the last few months. Macquarie thinks that it has good growth potential over the long term.

Morgan Stanley thinks that domestic sales in ANZ may have been solid in the first half when looking at other ASX retail shares. Other acquisitions could be on the cards with its healthy balance sheet.

The ASX growth share recently acquired Evans in the UK. City Chic plans to turn it into an online-only offering, with lower costs.

Audinate Group Ltd (ASX: AD8)

Audinate is a business that owns the Dante platform which replaces traditional analogue audio cables by transmitting synchronised audio signals across large distances to multiple locations at once using just a ethernet cable.

It’s used in the professional live sound, commercial installation, broadcast, public address and recording industries.

COVID-19 has impacted some of the industries that Audinate helps, but it is recovering. In the first half of FY21, Audinate said that it had generated US$11.1 million of revenue – this was in-line with the first half of FY20. It represented an increase of 19.3% from the revenue made in the second half of FY20.

Audinate also announced in the same update that it has been able to attract and establish an experienced video development team of 11 employees in Cambridge, in the UK. Audinate is looking to develop the next generation of Dante audio and video software implementations. It wants to make Dante video the technology of choice. This will help increase the company’s total addressable market.

Bailador Technology Investments Ltd (ASX: BTI)

Bailador describes itself as a technology expansion capital fund. In other words, it invests in private technology businesses.

It’s invested in a few different businesses right now including Instaclustr, Stackla and Straker Translations Ltd (ASX: STG).

Bailador says that its portfolio of companies are well capitalised with no liquidity concerns. It has a portfolio of 10 investments which have a gross margin of more than 75%. Bailador has disclosed 86% of the company revenue is recurring. Excluding travel, its portfolio is generating revenue growth of 25%.

It recently reported its FY21 half-year result which showed a net profit of $13.1 million and the pre-tax net tangible assets (NTA) per share increased by 12.3% to $1.39.

Bailador expects 2021 to be a significant year for profitable realisations.

More reading

• 2 of the best ASX tech shares to buy this week
• Bailador Technology Investments (ASX:BTI) share price is pushing higher
• 3 ASX shares rated as strong buys by brokers
• 2 ASX shares rated as strong buys by brokers
• 2 ASX shares to own according to fund managers

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO and Macquarie Group Limited. The Motley Fool Australia has recommended Bailador Technology Investments Limited and Straker Translations. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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