Buy Hold Sell: 5 ex-20 stocks on a high

Some investors like the idea of treating the stock market like an extended fishing trip. They'll carefully pick their spot (think investment universe), patiently wait for the right opportunity, and aggressively reel it in when the time comes and hope that it's a big one.

For others, that approach may incite the reaction from the famous meme "Ain't nobody got time for that" and instead favour buying stocks that are already running hard. We call them momentum traders.

In this episode, we've picked out five ex-20 companies the market loves right now, but we've also got fundies Catherine Allfrey of WaveStone Capital and Jason Kururangi of Aberdeen Standard Investments to apply a qualitative overlay over the bullish behaviour of Altium, Northern Star Resources, and Pro Medicus.

Is chasing these momentum stocks akin to falling for the hook, line and sinker? Catherine and Jason discuss that question here, and also bring their two best Ideas in an uptrend but offering good value.

Notes: Watch, read or listen to the discussion below. This episode was filmed on 21 October 2020. Please reply in the comments section for stocks you want covered in future episodes - we appreciate your interest and will do our best to get them covered.

Edited transcript

Matthew Kidman: Welcome to Buy, Hold, Sell brought to you by Livewire Markets. I'm Matthew Kidman. And today, we are going to look at stocks that are at or near all-time highs. That's right. We're into momentum. Can they keep going? And to discuss these stocks, I've got Jason Kururangi from Aberdeen Standard and Catherine Allfrey from WaveStone Capital. Catherine, we'll start with you.

Altium (ASX:ALU)

Matthew Kidman: The real nuff-nuff. Circuit boards for technicians, Altium. Buy, hold or sell?

Catherine Allfrey (Sell): It's a sell for us. They delivered 10% revenue growth last year, and they're forecasting 6-12% this year in terms of guidance. And they put out this long-term forecast, which the market's lapped up and has just absolutely priced that. So at $40 for our view, it's just too expensive. And we think there could be some interruptions on the way to that five-year revenue target. It's not easy to get to that level as they're in a bit of a transition. And so for us, it's a sell.

Matthew Kidman: They've put out a number of bad announcements recently compared to the market, but the market loves international niche players. Altium, buy, hold, or sell?

Jason Kururangi (Buy): It's a buy for us. Look, we take a three-year view when we're looking at these stocks. And when we look at Altium, it's a really high-quality product. It's got a large addressable market that they're growing into, and there's a transition going on where we expect significant value to be created for us as shareholders. If you look offshore where you've seen transitions to Software as a Service models, they can be very successful. There will be wobbles along the way. And we don't doubt that there could be a bit of a wobble, but we believe in the long-term story and that it will generate significant value for us as shareholders.

Northern Star Resources (ASX:NST)

Matthew Kidman: Okay, let's go with something a bit more exciting than circuit boards. Gold. Northern Star Resources, big merger with Saracen announced recently. Buy, hold, or sell?

Jason Kururangi (Hold): I'm going to go with a hold where it is trading today. We think that the current valuation captures spot gold. We do like the story, we like the business, and we respect that the management team didn't go out and overpay for Saracen and it was done at a nil-premium merger. So I'm going to stick with a hold. We like the story, but it's fairly valued.

Matthew Kidman: Okay. The world's printing money. Gold's got to keep going up, doesn't it? Northern Star, buy, hold, or sell?

Catherine Allfrey (Hold): We're happy holders, right? I think with Northern Star, every $100 move on the gold price is worth a dollar to the share price. That's your rough rule of thumb. So at $16, it's pretty much, as Jason said, pricing in what the gold price is today. Fantastic merger, nil premium, applaud that in terms of management and board doing that. And no doubt, the synergies they've announced in terms of the Super Pit in Kalgoorlie, $1.5 to $2 billion of synergies. So we would hope that that could be achieved, but yeah, we're positive on the company, but it's a hold at these prices.

Pro Medicus (ASX:PME) 

Matthew Kidman: A happy hold. We haven't had that before. Okay, medical imaging, global leader, Pro Medicus, been a juggernaut. Buy, hold, or sell?

Catherine Allfrey (Hold): I'm going to go hold on that one. They're hinting at the fact that they've got more hospital contracts lined up. It is very expensive again in terms of the multiples that it trades on, but it's early on in its penetration story. It's got seven of the top 20 hospitals in the US now signed up, which is obviously a positive. It's very well-managed company. It's been very successful, but it's a ritzy multiple.

Matthew Kidman: Who would have thought? Little company out of Melbourne, took on the world and now it leads imaging in radiology. Buy, hold or sell?

Jason Kururangi (Buy): I'm going to go with a buy on that. Look again, Pro Medicus, I actually can't say anything different to Catherine. Maybe just we're taking a slightly longer-term frame of thinking on the valuation. We think that there's significant upside as they keep rolling out contracts with additional hospitals. And again, we're happy holders of the stock we've been accumulating over the last six months. So definitely like the story.

Xero (ASX:XRO)

Matthew Kidman: Okay. Keep the momentum going. What's a stock that you think is trading up there, but it's still got a long way to go?

Jason Kururangi (Buy): Yeah, look, I'll grin and say this one. I really love Xero. We've owned this for a long time since the back end of 2017 and it's delivered phenomenal returns for us as shareholders. I think there's a great total addressable market there; great product, great innovation lead. And we just think they're going to keep going. And there could be some volatility near term, depending on how SME subs and churn comes through in the next year. But we are happy holders and taking a long-term view where we see it much higher in three years' time.

Matthew Kidman: And the good thing is it's a New Zealand-based stock.

Jason Kururangi: Exactly.

Nine Entertainment (ASX:NEC)

Matthew Kidman: Okay, Catherine. You've got something that can match Xero? It'd be hard. It's been very good.

Catherine Allfrey: Well, we do own Xero, but I'm going to go for something that maybe gets a bit more of an economic recovery to it in terms of advertising, but also is in a bit of a digital transformation. And that's Nine Entertainment. It's performed obviously exceptionally well over the last six months since the bottom of COVID, having the Stan brand behind it. And now Domain, with listings coming back in the real estate market and quite a hot housing market set to happen over the next 12 months, we quite like the idea of that. And plus they're seeing advertisers as return to the market for the December quarter, which we think would be positive for earnings. It's trading on a reasonable teen-type multiple. So if there's any sort of tech correction or anything, we think it can still hold that. And it's on a reasonable yield. So we still like that one.

Matthew Kidman: New world, old world, resources, industrials, the trend is your friend.

Enjoying Buy Hold Sell?

• Give this wire a like if you've enjoyed this discussion.
• Hit follow to be notified when we release our next episode, where Jason and Catherine discuss what it will take for the ASX to move higher from here. 
• If you're not an existing Livewire subscriber you can sign up to get free access to investment ideas and strategies from Australia's leading investors.