Are these 7 growth stocks loaded with potential? Pro Medicus Ltd (ASX: PME), Redbubble Ltd (ASX: RBL), Nearmap Ltd (ASX: NEA), CSL Limited (ASX: CSL), Netwealth Ltd (ASX: NWL), Nearmap Ltd (ASX: NEA), AVA Risk Group Ltd (ASX: AVA) and Upstart Inc (NASDAQ: UPST)?
Please note, this article first appeared as an email to Rask’s weekly Investor Club readers. You can subscribe to my email by getting a free investment report, when you create a free Rask account or when you take a free investing course.
My emails are accompanied by a recent episode of The Australian Investors Podcast, Australia’s top expert investor podcast. If you haven’t already, you can click these links to subscribe to the series: iTunes, Google or Spotify. You’ll get some of my latest stock ideas every week.
Alternatively, why not sit back and watch the video version on Rask’s YouTube channel? This week Dr Anirban Mahanti & I share our screens as we walk through the results of 5 companies, and name 2 stocks to watch. See the video below.
Are these 7 stocks loaded with potential?
Back in high school, my specialist math teacher would say things like:
“Exam time is my favourite time of the year. A chance to test yourself against the pack. To find out how good you are. I love it.”
Naturally, I thought he was crazy.
But fast forward to now and as an investor – I couldn’t agree more. I love seeing results!
(Just don’t ask me to sit another specialist maths exam)
In particular, this past week on the ASX was an absolute cracker for myself and the Rask Analyst team.
Obviously, I can’t share all of our favourite stocks given many of them are inside our members-only services like Rask Rockets Beyond & Rask Invest.
However, let’s just say that it seems to me investors… loved what they saw.
Here are some of the current Rask Invest scorecard positions, and their five trading day share price movement (according to Google Finance):
- Pro Medicus (which has a HOLD rating for Rask Invest) – up 17%
- Redbubble Ltd (a high-risk BUY rating for Rask Invest) – up 32%
- Netwealth Ltd (a Buy for Rask Invest) – flat
- Rask Rocket Beyond pick (Buy) – up 24%
- Rask Invest pick (hold) – up 2%
- Rask Rocket Apollo pick (buy) – down 4%
As you can imagine, not every company we recommend ‘pops’ on the day of the results.
Pro Medicus
Pro Medicus shares are not a Buy in my book. I own the shares, but I have done for many years. I bought them much lower than today’s prices.
We first recommended Pro Medicus to Rask Invest members in June 2018, at a price of just $7.45. Consider this…
In the past five days alone PME shares have risen $9.89 (or 17.67%).
That means the original investment value of our members’ purchase (~$7.45), had they held on all this time, would have doubled in one week (since $9.89 is larger than $7.45).
According to the Rask Invest public performance review table, which you can view at any time, our Pro Medicus recommendation is now up around ~780%.
Not bad for just a few years in.
I’ve held onto some of my shares, but at today’s prices the company is just way too expensive for me to want to buy more.
Netwealth
Netwealth is a company our team have been following lately.
As I say in this week’s investors podcast with Dr Anirban Mahanti, the Rask analyst team was happy with a lot of what was on display from Netwealth:
- More fund flows into its platform
- More users/advisers, and
- It continues to take share from the incumbents
Probably the one downside for me and our lead research analyst Raymond Jang was the falling margins.
However, I think this can be expected given the industry dynamics.
And keep in mind the overall stickiness of the business model. Once a customer is on Netwealth and paying, the business is like a toll booth they drive through 365 days a year.
Finally, I’ll touch on Redbubble. But before I get to that…
I believe one of the hardest things every investor has to do, is avoid the mental traps forcing you to think short term.
On social media this week, I have never seen a more divisive result than what we saw from Redbubble.
And this time it wasn’t just ‘punters’ and anonymous accounts.
Redbubble
Redbubble is a global marketplace for independent artists to sell their custom designs to users (like me).
When the company handed in its report card this week so many investors were doing victory laps as the shares fell 14% within minutes of ASX trading.
The most recent quarter was slow. Definitely. Anyone could see that.
Lapping 2020’s Covid comparable numbers was always going to be tough. So too will the next six months, as the world (ex Australia) no longer needs to purchase things like customised face masks or stay cooped up inside looking for custom Christmas presents online.
However…
There were so many impressive underlying numbers inside the Redbubble result that give me confidence in the long-term future of the business.
To be sure, it should be considered extremely high risk.
One of the big reasons why the shares fell 14% within 20 minutes of trading — then ended 20% higher! — is because short sellers were targeting the company.
In their eyes, Redbubble is probably a ‘thin margin, high risk, one-hit Covid wonder’.
And it could be.
But, it might not.
As I said to an analyst I respect shortly after the results dropped (I’ve paraphrased):
‘Even if there’s, say, a 50% probability that I’m wrong about Redbubble and the thesis bursts, I’m willing to take the bet. Why? If I’m right about the company’s long-term potential, it could be worth multiples more than it is today.’
That’s a bet I’ll take every day of the week.
You see, from where I sit, long-term investing is not about getting every ‘call’ right. No-one can do that.
Long-term investing is not about seeing what the share price is doing to make a decision. I believe the link between daily share price movements and investor skill is tenuous at best.
Long-term investing is not about agreeing with other investors. More often it should be the opposite.
Finally, long-term investing is not about predicting what a share price does over 1 or even 2 years. It’s about understanding a business’ long-term fundamentals.
If you get the direction and fundamentals of a business right (number of customers, sales growth, profit, dividends, etc.), other investors will eventually agree with you. It just takes time.
Here’s a gameplan to get you through reporting season
If Redbubble or other companies have you shook, here’s a plan to help you make better decisions during the remainder of Reporting Season.
This is my game plan.
Before the report is released:
- Identify 3 things that matter to your company (e.g. number of users, revenue, dividends, debt, cash flow, etc.). Write these down now. For Redbubble this was/is the number of artists, customer acquisition spend and free cash flow.
- Watch my short YouTube video (see below) which explains how to analyse an annual report.
On the day of the report:
- Do NOT read the financial news or go on to social media to get the view of other investors. This is probably the second-worst thing you can do on the morning of a result release. It will taint your opinion of all the results you’re about to read for yourself. If you did this for Redbubble you might have been in hospital right now — I reckon social media would have given most Redbubble shareholders a heart attack.
- Do NOT ‘see what the share price is doing’. Long-term investing returns are measured over 5 years or more. If you believe me, daily share prices would therefore be just a ‘blip’ on a 5-year share price chart. Focus on the business. It’s less stressful, more enjoyable, and I think — more reliable.
- Slow down. For any of our paid investment services (Rask Invest, Rask Rockets, etc.) I’ve never made a decision to sell a stock based on a single report. If you do your job in picking the right companies the first time you will realise that businesses are not fragile like glass. One bad report doesn’t shatter its potential. Strong businesses can be thought of more like a ‘living thing’. Evolving. Growing. Responding to challenges. This type of resilience comes from good people with the right incentives, operating in a market with strong dynamics. Few of these things will change overnight.
If you do each of these five things for all of your companies, I’m confident you’ll come through the other side of ASX Reporting Season having made far better decisions than you might otherwise.
I’m yet to sell one Rask company based on the results I’ve seen so far — in fact, it’s quite the opposite: I’m readying myself to buy more.
But what about CSL & Nearmap?
To keep learning and get some more watchlist ideas from Anirban and I, you should tune in for this week’s episode of The Australian Investors Podcast.
7investing’s Dr Anirban Mahanti and myself get into the weeds on 5 company reports. Then we pitch 2 growth stocks to watch.