Buy Hold Sell: 3 dogs of the ASX (and 2 darlings headed higher)

If there is one thing investors have heard on repeat over the last 12 months, it's that there's a massive opportunity in small-cap stocks, which were, at the time, massively undervalued compared to their large-cap counterparts. 

And while experts' predictions seem to have come to fruition, with the Small Ordinaries Index outperforming the ASX 100 since the beginning of the year, there's been a handful of stocks - plagued by negative news - that have been left behind by the benchmark. 

Take IDP Education (ASX: IEL), for instance, which has seen its share price fall around 14% in 2024. Or Bapcor (ASX: BAP), also down 14%. Or Cettire (ASX: CTT), which has retraced the gains made in the early part of the year and is now trading back where it started. 

So in this episode, Livewire's Chris Conway was joined by Datt Capital's Emanuel Datt and OC Funds Management's Aaron Yeoh to see if there is any value in any of these beaten-down stocks. 

Plus, they also each name a darling that has been headed higher in recent months - and they believe it can push higher still. 

Note: This episode was recorded on Monday 6 May 2024. You can watch the video, listen to the podcast or read an edited transcript below. 

Edited Transcript 

Chris Conway: Hello and welcome to Livewire's Buy Hold Sell. My name is Chris Conway and today we will be analysing the extremities of the small cap spectrum. These are stocks that have absolutely shot the lights out and our fundies think they will continue to do so, as well as three stocks that have been absolute dogs - maybe there's some value there? To find out, we're joined by Aaron Yeoh from OC Funds and Emmanuel Datt from Datt Capital. Emmanuel, I'll start with you.

IDP education is the stock that we'll talk about first, international education organisation offering student placement in a range of countries. Buy, hold or sell?

IDP Education (ASX: IEL)

Emanuel Datt (SELL): IEL is a sell for us. It's basically trading on too hefty a valuation and it's priced for perfection. We've seen consistent falls over the past couple of years from its peak and it's down about 58% or 60% from its peak. Ultimately, the economics of the business are heavily dependent on immigration ultimately and Australia's continuing attractiveness as a destination for international students.

I think there've been some question marks over what the future policies may be from the federal government around that, I guess shaking investors. For us, it's not a risk we want to take, so we'll call it a sell.

Chris Conway: Aaron, the share price has tumbled 18% year to date, adding to those falls that Emanuel was talking about more broadly. Buy, hold or sell for you?

Aaron Yeoh (HOLD): IDP is a hold from our perspective. We think it's a very high quality business, but I do agree, in the near term, there is a lot of pressure from a regulatory perspective. The Australian government has a target to halve net migration in the next 12 months. That's still outpacing their targets at the moment, so we're just a little bit wary about the potential risks in the near term. So good quality business, but earnings probably a little bit shaky near term, it's a hold.

Chris Conway: The next one we'll talk about is Bapcor. This one was absolutely smashed of late when it came out with the news that the soon to be CEO was deciding to not become the CEO just two days before he was supposed to take the job. Never a good thing for the market or for the share price. Aaron, I'll stay with you, buy, hold or sell?

Bapcor (ASX: BAP)

Aaron Yeoh (SELL): It's had a torrid run, but it's still a sell from my perspective. It should be a fairly defensive cash flow generative business, but it's gone through significant management change over the last 24 months. It is literally rudderless with no CEO and CFO at this point in time. It's a business that's predicated on strong relationships with suppliers and customers. I think there's just too much near term risk for me. It's a sell.

Chris Conway: Emanuel, the share price down 25% just a few days ago on that news that I was just talking about. It's only down 14% year to date, so not so bad over the slightly longer term. Is the weakness a buying opportunity for you? Is it a buy, hold or a sell?

Emanuel Datt (SELL): It's a sell for us, Chris, and why that is, is that it still trades at 20 times NPAT despite flat top line growth. And of course, there's the issue of the revolving door in the C-suite where we've seen the Chair not putting themselves up for re-election. We've seen the CEO, the CFO, the CEO-elect also step down. And so effectively, as Aaron mentioned, you've got a company that's rudderless with just an interim CEO and CFO team, meaning the ability to make an impact on the business itself is quite limited.

I think the market does expect there to be a write-down of goodwill and inventories potentially, and I think the company did allude to that fact in their latest trading update. Clearly a risk that we don't want to have exposure to, so it's a sell for us.

Chris Conway: Makes sense. Next up, we're going to talk Cettire, and it is another stock that has been in the news of late - not always for the best of reasons. Luxury, online fashion retailer. Emanuel, I'll stick with you, buy, hold or sell? How many $400 jumpers are you buying from Cettire?

Cettire (ASX: CTT)

Emanuel Datt (SELL): It's a sell for us again, Chris. I think that the business itself has experienced some positive externalities in the sense that some of its global competitors have actually slowed their operations considerably and Cettire has... Whilst it's managed to benefit, I think in the short term, I don't really think it's a sustainable model over the long term, given there are big question marks around the provenance of where it gets its stock, for instance. We have difficulty really understanding their accounting treatment of certain aspects of their business. It's in a too hard basket in a nutshell for us. And we'll call it a sell.

Chris Conway: Great. Aaron, what about you? You look like a fashionable young man. What do you think, buy, hold or sell?

Aaron Yeoh (BUY): I actually disagree with Emmanuel. Cettire is a buy from my perspective. Again, we like the fact that it's a founder-led business. Dean Mintz still owns 30% of the business, still heavily aligned with shareholders. He bootstrapped this business from day one to IPO and I think he runs a really focused business where if you dig underneath the surface around how he has built this business and you speak to a number of other competitors, only then do you realise how this business is much more efficient than its peers.

I think there's a significant barrier to entry for someone else to come in and procure supply, get the supply arrangements that Cettire has. They've literally done this with having no website. I think it's testament to the persistence of the management team. In addition to that, yes, its major competitor, Farfetch has gone through significant turmoil in recent periods. It's gone through a liquidation process, subsequently been acquired by a Korean e-commerce company. We've spoken to a few different suppliers out there as well, and I think that's really benefiting Cettire and will continue to benefit it with regards to procuring not only a wider range of supply, but a deeper range of supply of the products that people are after. And so we think the opportunities ahead of it are still very compelling and the numbers will do the talking, so it's a buy.

Chris Conway: Speaking of the numbers, the year to date share price, it's up 5%, but that's well down from the February highs. It's off around 36% from those highs, so it makes for interesting reading, no doubt.

Guest picks

My favourite segment of the show, we've asked the gents to bring along a stock that they particularly like at the moment. Obviously a big growth stock. Aaron, I'm going to stay with you. One that has shot the lights out. You think it will continue to do so. What have you got for us?

GQG Partners (ASX: GQG)

Aaron Yeoh: GQG Partners, the ticker is GQG. They're a listed global and emerging market equity manager out of Fort Lauderdale in the US. The business has only been around for eight years and it's grown to roughly over $140 billion in funds under management. It's founder led, led by CIO Rajiv Jain, who still maintains himself as the largest shareholder with around 70% of the shareholding.

The business has continued to invest significantly in its investment team and distribution capability as well. All of its major funds are performing extremely well. They've shown an ability to outperform through all market cycles. The stock is trading on 11 times PE and we think that they can continue to deliver double-digit growth over medium term. We just think it's too cheap, so it's a strong buy.

Chris Conway: GQG Partners, fantastic. Emmanuel, last word for the day. What have you got for us in terms of a stock that has shut the lights out and you think will continue to do so?

Jupiter Mines (ASX: JMS)

Emanuel Datt: My pick would be Jupiter Mines that trades on the ASX under ticker JMS. Jupiter's risen about 60% over the last month and a half. Why that is, we've seen South32, they have asset called GEMCO that's based in Northern Australia. And unfortunately, it was right in the path of Cyclone Megan.

So there was a tremendous amount of damage that was sustained. It was actually a major outage for the global manganese market, given the GEMCO asset produces 12% of global supply. South32 have actually come out and guided that this will be at least a year-long process to... That's a preliminary estimate, so it could extend. That's our base case. Ultimately, we think that structurally, this is a huge change for the global manganese market and we've seen prices more than double over the last 45 days or so. And we expect this situation to persist and we think that the manganese price is going to remain sustainably higher for at least the next 12 to 18 months.

And then the question comes down to what's the best way to capture this dynamic? And it's by investing in a producer like Jupiter that has a majority share in what's a tier one mine, lowest in the global cost quartile and extremely high quality asset - a 100 plus year mine life. And importantly, it's an existing producer with existing relationships with buyers and certain marketing chain.

Chris Conway: Thanks, Emmanuel. Thanks, Aaron. Some great picks there. If you enjoyed that episode of Buy Hold Sell as much as I did, make sure to give it a like. Don't forget to follow our YouTube channel because we're adding lots of great content every single week.