Buy Hold Sell: 3 themes (and 6 stocks) for the rest of the year and beyond

Everyone loves a theme these days. Whether you’re an individual investor looking to capitalise on both short and long-term trends, or a product issuer looking to provide access to opportunities, themes are dominating the way we think and the way we invest.

And while themes will fall in and out of fashion (lithium, for example), it is important for us as investors to be aware of them and to understand how to access them, should we choose to participate.

In that vein, in this episode of Buy Hold Sell we’re unpacking three of the biggest themes from the first half of 2024 and asking if they still have legs.

To do that, Grady Wulff sat down with Steve Johnson from Forager Funds Management, and Luke Laretive from Seneca Financial Solutions.

And, for something a bit different, Luke and Steve each name a stock they like within each theme – that’s right, six hot buys to see out the rest of the year.

Note: This episode was recorded on Wednesday 19 June 2024. You can watch the video, listen to the podcast, or read the edited transcript below.

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Edited Transcript

Grady Wulff: Hello and welcome to Livewire's Buy Hold Sell. I'm Grady Wulff, and today we're looking at three of the most exciting themes in the market right now. Plus for something a little bit different, we asked our guests to bring a stock that they're bullish on for each theme. That's right, six hot buys right now. To do this, I'm joined by Steve Johnson from Forager Funds Management and Luke Laretive from Seneca Financial Solutions.

Theme #1: Artificial Intelligence

Gentlemen, thanks for joining me. What an exciting time in the markets right now. There are some really key themes standing out. We'll start with artificial intelligence. There's no denying that is the dominating theme right now.

Steve, I'll come to you first. What are you liking in this space?

Alphabet (NASDAQ: GOOGL)

Steve Johnson: I'll start with an overarching thing and that is I go looking for the anti-themes more than the actual themes, and there's actually some great opportunities out there at the moment in this artificial intelligence space of businesses that people think are going to get killed by AI. We own a company called TaskUs in our international fund. It's a very, very good business generating lots of cashflow. People think AI is going to kill it, and the share price has been hammered because of that. So there's lots of that. If you do want to do it, I'd be careful. There's a lot of hype at the moment around AI. I think Alphabet - I pitched it on Livewire a few years ago as a stock that I would hold for the rest of my life- if I had to pick one.

I think they have some incredible competitive advantages. They've got a huge amount of data about us all and AI is driven by data. These algorithms that they're using were around in the 1980s. What's made the difference is the amount of data and if you don't have that data, you can't win. And I think Alphabet's got more than anyone else across its various platforms and I expect them to do very well out of it.

Grady Wulff: Now there's no denying Alphabet has had a very good start to the year, up 30% this year alone. Now Luke, what have you got for us? Can anything top Alphabet that we're seeing?

Global Data Centre Group (ASX: GDC)

Luke Laretive: I don't know about topping Alphabet, but at 0.01% of the market cap, Global Data Centre Group, GDC on the ASX. They own a 1% stake in AirTrunk, which I think the most exciting part of this data centre thematic around AI is really the hyperscale data centres, and investing in NextDC here on the ASX just won't get you exposed to that hyperscale growth. I think Global Data Centre Group, whilst it's relatively unknown – with a tiny, $230 odd million market cap - actually does give you some meaningful exposure and leverage. I think that AirTrunk asset will IPO this year. I can't imagine the owners of that asset getting a better environment to go into an IPO. And certainly when that asset does transact, there are some meaningful incentives for the management team to return capital to shareholders. And from our perspective, GDC looks fantastic at the moment.

Grady Wulff: Global Data Centre is up 55% this year to date, so it is on a bit of a run, but you're pretty optimistic about it.

Theme #2: Healthcare

We'll look at the next theme now and that is the healthcare sector where we've seen some absolute flyers this year. The sector itself though only up 2% this year.

Luke, I'll stay with you. What are you seeing in the healthcare sector? Where's the opportunity?

Monash IVF (ASX: MVF)

Luke Laretive: I really like Monash IVF. I think that's a fantastic business, still only trading on 16 times earnings and a 4.5% dividend yield. From our perspective, it's got some fantastic tailwinds from a demographic perspective. It's a really well run business and there's been transactions at 30% and 50% higher valuations in the sector. So for us, that's a natural takeover target and in the interim you're getting paid a nice dividend and some good growth upside as well. So I think that's a pretty good business for people to own.

Grady Wulff: Monash is up 3% year to date, but 16% over the last 12 months. Steve, over to you. What's your favourite in the healthcare cohort right now?

ResMed (ASX: RMD)

Steve Johnson: There's a surprising amount of pain out there and we've actually been doing a lot of work on a lot of stocks at the big end and even at the smaller end. There's some smaller medical device companies out there that I think are really interesting. I still think ResMed's a good core holding for a lot of Australian investors. Yes, it had the massive plummet, it's back to where it was, but this is effectively an American company. They don't pay much out in the way of dividends. They buy back shares every year. The share price should go up. I think they can grow their earnings at more than 10% per annum for a long time yet and trade at a similar multiple. So you should get that earnings growth as share price growth over time. It's a great business listed here on the ASX.

Grady Wulff: Now, ResMed did bottom out at $21 in September last year, but it has rebounded to $32 where it's been sitting for a little while now, up about 25% year to date. So that's ResMed and Monash IVF for the healthcare sector.

Theme #3: Decarb and the Resources Revival

And the last theme we'll touch on is decarbonisation and the resources revival, a theme that hasn't really gone anywhere over the last few years. There are lots of hot commodities right now and we're in a really interesting part of the commodity cycle.

Steve, I'll stick with you on this one. Where's the opportunity in the decarbonisation space and resources revival?

Uranium (and Cameco)

Steve Johnson: Yeah, what's been working well for us that hasn't worked for about 10 years is the mining services space. So we've been long-suffering shareholders there and we've done quite well both globally and here in Australia. MacMahon (ASX: MAH) is up a long way for us. I still think the big diversified miners out there are really interesting. Just long-term investments. And again, back to that ESG theme, there's not a lot of capital going in. It's hard to develop new mines. We own Glencore in our international fund. It's one of our really core holdings there. And I think this uranium theme has some reality to it. A bit of heat has come out of the market recently. The uranium price is down, all of the share prices are down. Again, I'd go big and safe. I think you can buy sensibly-priced, large, producing companies like Canada's Cameco.

Grady Wulff: And the uranium price is sitting around US$90 a pound right now and it was just sub US$50 a year ago.

Steve Johnson: Yeah, it's still higher than it will be long term. I think at $75, $80, you get a lot of incremental production coming on, and if you're not going to make money at that price, you're probably not going to make money. You might get short-term spikes, but it's a long-term contracted market and I wouldn't expect it to be dramatically higher than that.

Grady Wulff: Now Luke, last but not least, what do you like in the resources and decarbonization thematic right now?

Vulcan Energy (ASX: VUL)

Luke Laretive: We're still bullish on the lithium sector, despite the short-term negativity. I think the most interesting and exciting decarbonisation story there is Vulcan Energy Resources. Code for that is VUL. That's a business that is building a geothermal-powered, essentially lithium facility in Germany. Really interesting business and has been completely written off by a lot of fund managers around the market, I think, due to the buzzy headlines around it. That being said, they're progressing their project nicely. They just raised $65 million from some pretty interesting investors, and certainly they've got a lot of news flow expected over the next few months. So from our perspective, that business looks really good. It's something that's probably three, four, five billion dollar NPV that you can buy at an $800 million market cap with $140 million bucks cash in the bank. So I think there's value there and opportunity to take advantage of some of the catalysts that are coming up for this business.

Grady Wulff: Well, Luke likes it and investors like it as well with a rally of 50% since March this year.

That's all we have time for today. You heard it here from the experts about the themes they're liking and what the stocks are within each theme. If you did like this episode as much as we did filming it, why not like it and subscribe to our YouTube channel. We're adding a lot of great content every single week.