Buy Hold Sell: 3 of the ASX's most shorted stocks (and 2 long-term buys)

Sean Roger (HOLD): I'm going to agree with Sean here and go a hold as well. We quite liked it a little bit lower down. We think the management team did a really good job in reshaping the business during that period and closing stores. And I think you're starting to see the corporate business within Flight Centre taking a lot of market share during COVID. So I think the outlook there's quite nice. 

The one area that concerns us a little bit is revenue margins. It obviously had a big mix shift away from the retail store network towards online, which is a lower margin channel. And you've seen the airlines, Qantas in particular, try and take back a lot of that distribution margin themselves in cutting front-end commissions. And we think with the stock where it is today, which is actually closer to $50 on the pre-COVID share count, that you are pricing in a bit of an improvement in those revenue margins from where they are today. And we just think there's still a bit of uncertainty there. So it's a hold for us.

IDP Education (ASX: IEL)

Ally Selby: Next up we have IDP Education. It has a short interest of around 6%. Sean, staying with you, is it a buy, hold or sell? 

Ally Selby: Its share price has risen around 21% over the past 12 months. Sean, over to you. Is it a buy, hold or sell? 

Sean Fenton (SELL): It's getting a little boring, but I agree. It's a sell and for similar reasons. Certainly, the competition from Pearsons, but also they demobilised a little bit in China through lockdowns. So I think they've lost a bit of traction in their business there. So even with the rebound and China reopening, they're not necessarily poised to benefit as much from that. So it's too expensive with those earnings risks. 

A2 Milk (ASX: A2M)

Ally Selby: Last one for today - we have A2 Milk. It has a short interest of around 4%, but it has been making headlines recently for the wrong reasons. Sean, is A2 Milk a buy, hold or sell? 

Sean Fenton (SELL): It's fallen back a little way, but I think it's still a sell here. It's just a competitive market. Basically, with the Chinese business of infant milk formula, there's more domestic competition there. And importantly, you have a backdrop of a shrinking market. So a falling birth rate and you can't turn that around. That's the one-child policy and it's caused a decline in women of childbearing age. You just cannot change that for the next 20 or 30 years. So that's going to be a declining backdrop and increasing competition. There is a little bit of risk around their licence renewal, but I think that goes through. They're getting into your more expensive distribution channels, Mum and Bub stores. But that margin pressure. It's tough. 

Ally Selby: As Sean mentioned there, the share price has fallen this year, it's down around 23%. Sean, is it a buy, hold or sell for you? 

Sean Roger (BUY): I don't think I've got many friends with this one, but I'm going to call A2 Milk a buy. We think the company's gone through a turnaround period and has come out the other side in a stronger position. You've seen management increase marketing quite substantially and also shift the channel, as Sean said, to what are more expensive channels. But we also believe that they're more sustainable channels. 

Our view is that there's a lot of focus at the moment on the Chinese birth rate and also in the short term, the risk around the SAMR licence. And perhaps, not enough focus on the fact that A2 Milk is the fastest-growing international brand in that Chinese market and is actually taking a considerable amount of market share in what is a challenging market. And for us, $700 million in net cash on the balance sheet, a really strong brand, we think it's buy. 

Ally Selby: Okay. We asked our fundies to bring along one high-conviction stock pick for the year ahead. Sean, what have you brought for us today? 

Iluka Resources (ASX: ILU)

Sean Roger (BUY):  Our stock's Iluka. So Iluka has a leading position in the mineral sands market, which we think has got a really attractive structure and looks to be supply-challenged over the next few years. You've got a lack of new investment in mines. You've got grade declines across the industry, and you've got some challenging operating conditions in regions like South Africa where some of their competitors have mines. The key attraction for us, however, is the diversification into the rare earth's business.

Iluka is building Australia's first and only fully integrated rare earth refinery. And we think globally with the push to diversify critical mineral supply chains, that asset will be a highly strategic and highly cash-generative asset over time. We've got a fundamentally positive view of the demand-supply dynamics within the rare earth market. 

So for us, you've got a core mineral sands business that is generating a lot of cash. You've got a 20% stake in Deterra (ASX: DRR), the iron ore royalty company, which we think is one of the highest-quality royalties out there. And you've got a rare earth business that we think you're not paying much for at all in the current share price. So Iluka's our buy. 

Ally Selby: Okay. Over to you, Sean Fenton, what's your highest-conviction call right now? 

Telix Pharmaceuticals (ASX: TLX)

Sean Fenton (BUY): We're going to go with Telix, which is a pharmaceutical company that basically cures cancer, so you've gotta like that. They have a current product approved in the US, Illuccix, which basically is a diagnostic tool for prostate cancer. So they have platform technology that combines molecules that can target different cancers and add on things like radionucleotides, which can be picked up on imaging scanning or combined with chemo or antibody therapy, which can help cure that disease. 

So they've already got their start there in prostate cancer diagnostics. They're in the pipeline getting close to therapeutic there but have got a very broad pipeline in other small cell solid tumours like in the kidneys and the brain. In the last quarter, they had very strong sales growth. They've moved into a position of positive cash flow generation and there's a big pipeline to come. So we see that continuing to drive growth. And, at the end of the day, it's quite an attractive takeover target for big pharma globally. So that's always an option on the table. 

Ally Selby: Well, that's all we have time for today. I hope you enjoyed that episode of Buy Hold Sell as much as I did. If you did, don't forget to give it a like. Remember to subscribe to our YouTube channel. We're adding so much great content every single week.