TOL - 16th Aug, 2024
Buy Hold Sell: 5 oversold ASX stocks
In this episode, Hayborough's Ben Rundle and Perpetual's Nathan Hughes search for value among some of the ASX's most oversold stocks.
Like most things in life, stock sell-offs come down to simple supply and demand. If there are more sellers than buyers, a company's share price will fall.
Typically, this happens for a variety of reasons - like a disappointing earnings report, poor forward guidance, or new entrants creating further competition or disruption, to name a few. Often, a stock's share price may fall for macroeconomic reasons or general investor panic, rather than for fundamental reasons at all.
This, dear friends, is where the opportunity may lie. Nearly 30 companies are now trading at 52-week lows and many others have suffered double-digit losses over the last 12 months.
So to find out if there is any value among some of the ASX's most oversold stocks, Livewire's Ally Selby was joined by Perpetual's Nathan Hughes and Hayborough Investment Partners' Ben Rundle.
They analyse three oversold companies - including Tabcorp Holdings (ASX: TAH), Mineral Resources (ASX: MIN) and Hansen Technologies (ASX: HSN) - which have seen their share prices fall 44%, 30% and 20% respectively over the last 12 months.
Plus, they also name two beaten-down stocks that they believe are a buy today.
Note: This episode of Buy Hold Sell was recorded on Wednesday 14 August 2024. You can watch the video, listen to the podcast or read an edited transcript below.
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Edited Transcript
Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby and today, we're searching for value among some of the ASX's most oversold stocks. To do that, we're joined by Nathan Hughes from Perpetual and Ben Rundle from Hayborough Investment Partners.
First up today we have Tabcorp Holdings, which has seen its share price slide around 43% over the last 12 months. Ben, I'm going to start with you today. Is it a buy, hold or sell?
Tabcorp Holdings (ASX: TAH)
Ben Rundle (BUY): I think it's a buy. I might caveat that by saying just wait for the result. There is result risk around it, but the reason I think it's a buy is backing the man. I think Gillon McLachlan coming into the business - yes, he's getting paid a lot, but I think he's very concerned about his reputation as well. I think he had a lot of options on the table. He's chosen this one. I think there's a bigger play here and I think that backing someone like Gil will pay off for investors. I think it's a buy.Ally Selby: Are you also backing the man? Is it a buy, hold or sell?
Nathan Hughes (HOLD): I'm going to say it's a hold. I think the business has struggled with going from monopoly many years ago to a very competitive environment. They have a very strong competitor in Australia in Sportsbet. It makes it very hard for Tabcorp to retain and grow its market share. However, I do acknowledge that that valuation is far more attractive at these levels. The stock's been under a lot of pressure, so I think there's some valuation support there.Mineral Resources (ASX: MIN)
Ally Selby: Okay, next up today we have Mineral Resources, which has seen its share price slide in the face of weakening commodity prices. Next one for you, Nathan. Is it a buy, hold or sell?
Nathan Hughes (SELL): It's a sell and that's no reflection on the management team and what Chris Ellison's achieved over his tenure at Mineral Resources. However, the weakening commodity prices with some higher-cost assets and a bad balance sheet just mean there's a little bit too much risk there for us.Ally Selby: Its share price has fallen around 26% over the last 12 months. Over to you, Ben. Is it a buy, hold or sell?
Ben Rundle (BUY): I'm going to stick my neck out and call it a buy. I acknowledge the balance sheet is a little bit scary, but I think if you look at Chris Ellison's track record of capital allocation over many years, it gives me confidence that he knows what he's doing. They've been through a heavy investment period, which is the reason for that increased debt balance. It's trading on the commodity prices of lithium and iron ore coming off. I don't know where that bottoms out, but I think if you're taking a three-year view like we try to do, then the current share price will look pretty attractive.Hansen Technologies (ASX: HSN)
Ally Selby: Okay, next up today we have Hansen Technologies, which provides software and services to the energy, water and communications industries. Ben, is it a buy, hold or sell?
Ben Rundle (BUY): Hanson's a buy for me. The stock has come under pressure on the back of the Powercloud acquisition - an acquisition that was actually loss-making. But if you go back and look at the history of Hansen, they have a lot of experience in taking cost out of these businesses. From the industry work that we've done, it appears that Powercloud is quite a good business. I think that they'll turn that around and make it a success. And so I think Hansen's a buy.Ally Selby: Its share price has fallen around 19% over the last 12 months. Are you seeing value there, Nathan? Is it a buy, hold or sell?
Nathan Hughes (BUY): I agree with Ben wholeheartedly. We think it's buy. What we liked about the Powercloud acquisition was that it was actually quite small in the context of the broader Hansen group, but should it pay off, it could create a lot of value. So to Ben's comment, we think it was quite a sensible acquisition. The rest of the business is tracking along okay. It's got a lot of sticky recurring revenues, a very sticky customer base and a pristine balance sheet, so it's a buy.Ally Selby: We asked our guests to dig for value today. We want a stock that has been oversold by the market, but they think is a buy. Nathan, what have you brought for us?
Reliance Worldwide (ASX: RWC)
Nathan Hughes (BUY): So I brought Reliance Worldwide, a little bit of risk in reporting season [given it hasn't reported yet]. The reason I think it's a buy is there is a lot of negativity around this stock. So things like the American R&R (the replacement renovation) cycle, weakness in the UK economy and weakness in Australian housing starts. There's a lot of negativity reflected in the share price, but we think that's more than compensated for in the valuation. We also think they'll get some tailwinds in the outer years from falling copper and zinc prices as well, so a bit of COGS relief there. Excellent management team, balance sheet's in good shape and it's trading on about 15 times forward earnings. We think that's really good value.Ally Selby: Ben, which stock do you think has been oversold by the market and is a buy today?
Beacon Lighting (ASX: BLX)
Ben Rundle (BUY): I think Beacon. So similar dynamics, they're in a fairly cyclical industry and you tend to find that the share price moves around a lot more than the earnings do. So typically when you see a high-quality company like Beacon come back, I think the shares were $3.20 only a few months ago, and they've come back into the low $2s. So I think those opportunities are great ones to pick up high-quality businesses. So Beacon is my buy.Ally Selby: Well, I hope you enjoyed that episode of Buy Hold Sell as much as I did. If you did, why not give it a like? Remember to subscribe to our YouTube and podcast channels. We're adding so much great content just like this every single week.
Which oversold stock are you buying today?
Our guests have had their say, but we would love to know what you think. Let us know in the comments section below.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
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4 topics
5 stocks mentioned
3 contributors mentioned
Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
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