Buy Hold Sell: 5 growth stocks for the next 5 years

Growth stocks are the bread and butter of investors who are happy to stomach typically higher prices for exceptional above-market earnings growth. 

These companies typically exhibit high earnings and sales growth, a unique product or service, significant market share in their industries, impressive moats, and loyal customers. 

Take WiseTech Global, for example, which has seen its earnings grow at a compound annual growth rate of 43% since listing on the ASX, seeing its share price lift 2,319% (and counting) over that same period. 

So in this episode, Livewire's Chris Conway was joined by Datt Capital's Emanuel Datt and OC Funds Management's Aaron Yeoh for their analysis of three quality growth stocks with stellar growth trajectories over the next five years. And as a sneak peek, there's only one stock our fundies agree on. 

And just because we know you love a stock pick, each of our guests shares a strong buy they are backing over that same time. 

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

Other ways to listen: 

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Edited Transcript 

Chris Conway: Hello, and welcome to Livewire's Buy Hold Sell. My name is Chris Conway. Today, we are taking a look at five quality growth stocks for the next five years. These are small caps, so they're not set and forget, but for those willing to go on the ride, this episode is for you. To do that, we're joined by Emanuel Datt from Datt Capital and Aaron Yeoh from OC Funds Management.

Aaron, I'll come to you first. We're going to start hot. We're going to start with Macquarie Technology Group. Previously, Macquarie Telecom. MAQ provides cloud, data centre, and cyber security services. Buy, hold, or sell for you?

Macquarie Technology Group (ASX: MAQ)

Aaron Yeoh (BUY): Chris, Macquarie Technology is a buy from our perspective. It's a founder-led business run by David Tudehope. He and his family still have significant skin in the game and are heavily aligned with shareholders. 50% of the business is in the data centre space. From our perspective, we're seeing really strong structural growth demand at the moment, driven by both demand for cloud computing, but on top of this, generative AI is really the next leg of growth and has barely scratched the surface.

The business as well capitalized following a recent capital raise, and we think will be able to help fund the next leg of growth for the business. There's some upcoming catalysts with the stock; they're almost due to announce the builder for their upcoming data centre at the Macquarie Park campus. We think, after this, they'll probably announce some new customer wins and potentially land acquisitions which will further drive the earnings growth for the business.

Chris Conway: Emanuel, the stock is up around 24% so far this year. Buy, hold, or sell for you?

Emanuel Datt (SELL): It's a sell for me. I believe that the company is being priced as a growth stock despite fairly anaemic bottom-line growth. So growth at the NPAT level, for instance. Also, we recently saw the acquisition of a data centre from another REIT company, and we thought the cap rate of 3.6% was a very aggressive valuation. It was 36% over the book value. And we feel that the structure of the financing probably wasn't conducive to long-term shareholder returns, given about half the transaction was actually financed by the vendor themselves at a pretty hefty 7% plus CPI increases. It seems a bit in the too hard basket for us.

Chris Conway: I like it. A little bit of disagreement to start. We love that on Buy Hold Sell. That's what makes a market. Emanuel, I'll stay with you. We're going to talk AUB Group - a group of retail and wholesale insurance brokers. Not the most exciting business in the world. 570 locations globally. Buy, hold, or sell for you?

AUB Group (ASX: AUB)

Emanuel Datt (BUY): AUB is a buy. It trades at a pretty strong valuation, but then I think in this case, you're really buying quality. It's got a very good strong competitive position in all of its major markets, but also being a broker, it also has exposure to increases in insurance premiums, that we are seeing in the present day, but also expecting decent growth going forward as well. So for me, this epitomises what a good growth opportunity looks like.

Chris Conway: Yep. We're all familiar with those insurance premiums, aren't we? Aaron, the share price is up 4% year-to-date, but it's well off those March highs. Is it a buy, hold, or sell for you?

Aaron Yeoh (BUY): I tend to agree with Emanuel. AUB is a buy from our perspective. We think that the earnings outlook for the business is quite positive. It should be able to do north of 10% growth organically, plus through inorganic bolt-on acquisitions. The key drivers around that really are around the premium rate cycle. It's come off its peak level, but it's still growing at very healthy high single-digit rates, which we expect will probably continue into the medium-term. The claims' inflation has gone through the roof in recent years. The actual amount of premium insured, there's a bit of catch-up that needs to happen there, which will further support that earnings growth. So yeah, AUB is a buy from us.

Chris Conway: Next up we have tech darling, Megaport. It allows businesses to connect their IT infrastructure to a variety of worldwide networks. Aaron, I'll stay with you. Buy, hold, or sell?

Megaport (ASX: MP1)

Aaron Yeoh (BUY): Megaport is a buy as well. I don't want to sound bullish in everything, but we do think it's a buy. Firstly, we think its product is differentiated versus the more traditional telco peers who it's competing against. So we see a good opportunity for them to take share from traditional telcos. Secondly, they've got significant scale versus their next nearest networking-as-a-service (NaaS) competitor. We think that they're years ahead, effectively, in front of their competitors.

We also really like the new CEO, Michael Reid. We think he's done a tremendous job at turning around the business. He's reinvigorated and reinvested in the sales team, put proper alignment in place in terms of targets, and at the same time the company's made significant investments in upgrading the capacity of their existing network too. We think that will bode well with regards to great uptake from their customers. Probably more medium-term trend as well, but we also do see these guys as a beneficiary from more demand for data as a result of generative AI. So it's a buy from us.

Chris Conway: Emanuel, the share price has surged 50% year-to-date. So is it too ritzy? Is it a buy, hold, or sell?

Emanuel Datt (HOLD): Megaport is a hold for us. Ultimately, it goes back to that valuation that you mentioned. I think that the market has priced in a strong period of growth, and we've definitely seen that change in trajectory in terms of improvements in earnings momentum going forward. What that's really driven by is Megaport have a very good competitive position in terms of the underlying infrastructure. And ultimately, it's all about the utilisation of the infrastructure, which is improving. So even though the valuation for us is probably a little bit elevated, it's really, I think, a matter of earnings growing into that valuation, if you would. And we're happy to sit and hold at this stage.

Guest picks

Chris Conway: Great. My favourite part of the show now. We've asked the gents to bring along a stock that they would like to hold for the next five years, a growth stock of course. Emanuel, I'll stick with you. What did you bring for us today?

WA1 Resources (ASX: WA1)

Emanuel Datt: I brought forward WA1 Resources, which trades under ticket WA1 on the ASX. Why we really like this stock is that it's effectively discovered the world's second-best niobium deposit in the world's best mining jurisdiction, Western Australia. For those that don't know, niobium is an extremely rare critical metal. It's listed as a top three strategic critical metal by all major Western nations these days. It's used primarily in steel, however, with evolving applications in battery technology - fast-charging technology in particular.

We really like this opportunity because on peer comparisons and transactions, the comparable asset is the Araxá mine that provides 85% of global supply, and we've seen transactions of that asset, or for a portion of that asset, valuing the entire mine at US$30 billion. I'm not saying that this is a direct comparison, but it really does give you an indication what this asset could be worth should everything play out perfectly. Not that it will, but we can hope.

Chris Conway: One can hope. Exactly right. Fantastic. Aaron, growth stock for you for the next five years. What have you got for us?

HMC Capital (ASX: HMC)

Aaron Yeoh: Chris, my growth company is HMC Capital. The ticker is HMC. They're a real asset and alternative fund manager. They were listed in 2019 and have had rapid growth, and now manage roughly $10 billion in assets under management. They've had a really good ability to identify and execute on complex transactions, and have driven really strong returns for all of their investments, thinking north of 20% IRRs. And they're still targeting roughly 20% ROEs for their next round of investments as well.

The company, at their most recent half-year result, announced that it was entering into a range of different verticals, starting new funds with regards to renewable energy, healthcare, and also in the data centre space as well. We were quite excited about these opportunities. We think they are longer-term large opportunities for these guys. And at the same time, they've done a really good job at recruiting talent to underpin the growth within these funds as well.

The company's got a medium-term target to double its AUM to $20 billion over the medium-term. We think the market is underestimating the timeframe to get there. We think HMC can grow well north of 20% per annum over the next three to five years. So yeah, strong buy from us.

Chris Conway: Fantastic. Thank you, gentlemen. Well, that's all we have time for today. If you enjoyed that episode of Buy Hold Sell, make sure to give it a like. And don't forget to follow our YouTube channel, because we're adding lots of great content every single week.

Which growth stock would you back for the next five years? 

Let us know in the comments section below.