Buy Hold Sell: 3 of 2024’s hottest stocks (and 2 in the too hard basket)

Grady Wulff: Hello, and welcome to Livewire's Buy Hold Sell. I'm Grady Wulff, and today we're looking at three of the strongest performers on the ASX in the first half of 2024; stocks that are trading at 52-week highs. And I've also asked our guests to bring a stock that their investors should probably avoid over the next six months. To do this, I'm joined by Steve Johnson from Forager Funds Management and Luke Laretive from Seneca Financial Solutions. Gentlemen, thank you for joining me again today.

Grady Wulff: Let's dive straight in. Luke, I'll start with you. First up we've got RPMGlobal, the leading provider of mining software, advisory, and training in Australia and around the world. Talk to me about it. Is it a buy, hold, or sell for RPMGlobal?

RPMGlobal (ASX: RUL)

Luke Laretive (BUY): It's a buy from us, Grady. I think it's a fantastic business. Been going through a multi-year transition to recurring revenue. We're starting to see the operating leverage in that business really come through now. At the half, they did 25% revenue growth and 89% EBITDA growth, to give you some concept of where this business is going. It's still only on 12 times. We think this can re-rate to a typical ASX software multiple, and as a result, it's a buy from us – a significant upside here.

Grady Wulff: Steve, it's had a cracking first half of the year, up 50% year-to-date. Talk to me. Buy, hold, or sell?

Steve Johnson (BUY): Buy for us as well. We've owned this stock for six years, and we're not getting off the train yet. I agree with everything that was just said. I think you've seen the operating leverage. It actually could have worked that out quite some time ago. It's been happening underneath the surface for quite some time. It's now becoming really obvious because the cash flow is there, you're seeing it drop through to the bottom line. For us, the exit here is a takeover. I think it belongs in a global big business, and someone is going to be able to take substantially more cost out of it. So the earnings will be higher for a buyer than they are as a listed company today, and we should get a nice fat premium when that happens. And we've got a guy running the business, he's got a track record of selling these businesses. He knows what it's worth and he should get us a fair price.

Grady Wulff: Now, the next stock here is the Commonwealth Bank of Australia, CBA. Investors love it this year. It's sitting near all-time highs despite concerns over the housing market. Steve, buy, hold, or sell for CBA?

Commonwealth Bank (ASX: CBA)

Steve Johnson (SELL): Sell for me. It's a risky thing to say, I know, but I think there's better value here, and there is dramatically better value overseas if you want to invest in banks and financials. We own some great businesses in our international fund that are trading at six and seven times earnings and paying you 15% free cash flow yields. I hate to say it, I'm still worried about the property market here. I think the interest rates at some point have to hit people's capacity to pay the prices that they're paying. And I think there's enough to worry about without, don't need to kick it and say it's a horrible business. It's a great business, but there's enough to worry about for me to not want to pay today's price.

Grady Wulff: The housing crisis is definitely, definitely hitting home very soon. Luke, talking about the housing crisis and CBA, it's had a solid first half, not a spectacular, but up 12% year-to-date. Talk a bit to me about CBA. Buy, hold, or sell for you?

Luke Laretive (SELL): It's a sell from us too. It's not going to win either of us any friends, Steve, so probably going to be you and I for a beer this evening. But look, from my perspective, it's just really expensive for what it is. Core earnings are going nowhere. You've got a business that's doing a buyback that's largely funded by provisions. It's on 22 times earnings, the highest multiple it’s ever been on. It's the highest relative multiple to the other three major banks. It's the highest relative multiple to the ASX 200. There is just no rational or logical reason why anyone would buy the shares here, from my perspective. So look, sell from us. Good franchise, good business, but just way too expensive.

Grady Wulff: Next up we're discussing Aristocrat Leisure, the game-machine maker. It's also been pushing into online gaming in recent years. Luke, I'll stick with you for this one. Buy, hold, or sell?

Aristocrat Leisure (ASX: ALL)

Luke Laretive (BUY): It's a buy from us. I really like Aristocrat as a business. I think it's a pretty high-quality business. It's done 12% growth and 30% return on equity over the last few years. It's still only trading on 20 times earnings, so pretty reasonable for a business of that quality with that kind of growth. And I think the divestment they're going through at the moment is going to free up some capital, might result in some shareholder buyback or some extra dividends for shareholders. So I think that looks pretty good at these prices.

Grady Wulff: Now, Steve, this one has bounced a little bit around this year. We got the rally sharply from a May low sub $40 to currently trading near all-time highs around $47. It's bounced a bit, volatile. Buy, hold or sell?

Steve Johnson (HOLD): Hold for me. I agree with some of the characteristics of the business, and I have an overarching view about ESG that you can probably invest in that space and do really well over long periods of time, because there's just not new capital coming in and you're able to buy these things at fairly attractive prices because a lot of other investors can't buy them. So there's a theme there that we quite like, and we do own some stocks in our international fund, like Flutter, that are not the same but similar types of characteristics. This one, just with the share price run-up for me and the price, it seems pretty fairly done and we're finding better value in that space.

2 stocks in the too-hard basket

Grady Wulff: Now, we did ask our guests to bring one stock to steer clear of over the next six months. Steve, I'll start with you. The stock may have been past its investment thesis, it might be too expensive. What have you brought for us today?

Boss Energy (ASX: BOE)

Steve Johnson: Boss Energy, and I would throw that whole uranium exploration space into the bucket. We're quite bullish about the uranium theme. We've actually owned physical uranium. You can buy a physical uranium trust in Canada. I quite like Cameco, the Canadian-listed large player. Everyone's just piling in though to these businesses that are not yet making any revenue or not making much revenue. And if I know anything about mining businesses, things are going to go wrong. It's going to cost them more than they think to get the stuff out of the ground and there's going to be production problems. And I think by the time they actually start producing what they say they're going to produce, it's probably going to be less and it's probably going to cost more and people are probably going to be disappointed. So it's just the valuation of that business relative to the risk you're taking on.

Grady Wulff: Now, Boss is up 25% over the last year, but is down 30% in the last month. Luke, talking to you, we've obviously asked you to come with a stock that you'd avoid over the next six months. What do you think investors need to be wary of?

Nanosonics (ASX: NAN)

Luke Laretive: For me it's Nanosonics. And the reason for that is a few-fold, but first and foremost, it's an expensive business trading on a premium multiple delivering really no growth in its core product. It's got a new product coming to market, which they're looking for FDA approval on. Which, sure, what do I know about FDA approval? Probably nothing. But the management just sold almost 600 grand worth of stock with a product ready for approval, which to me doesn't bode too well. I would just want to see a business performing much better to be trading at such a premium price.

Grady Wulff:Well, that's all we have time for in this episode of Buy Hold Sell with Livewire. I'm Grady Wulff. I hope you enjoyed that episode as much as we did filming it. If you did, why not give it a like and subscribe to our YouTube channel? We're adding a lot of great content every single week.