Buy Hold Sell: 5 stocks set to soar in 2022

Small caps have had a cracker of a year, with the S&P/ASX Small Ordinaries rising 19% over the past 12 months, including dividends. Meanwhile, the stocks outside of the ASX 300 - the mighty micro caps - have generated a whopping total return of 45% (tracked by the S&P/ASX Emerging Companies Index). 

So why not dust off that crystal ball, gaze into the future, and see what the year ahead has in store for the smaller end of the market? 

In this episode, Livewire's Ally Selby is joined by Wilson Asset Management's Tobias Yao and Ausbil Investment Management's Arden Jennings for their thoughts on three stocks that could soar in 2022. These include reopening play Lovisa, accomplished Australian businessman David Teoh's TPG Singapore, and reader favourite Electric Optic Systems. 

Plus, for good measure, we asked our fundies to name the number one stock they are backing for the year ahead. 

What more could you want? 

Note: This episode was filmed on Wednesday, 24th November 2021. You can watch, listen or read an edited transcript below.

Edited Transcript

Ally Selby: Hello and welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and I hope you have your notepads ready because in this episode today, we'll be taking a look into our crystal balls to see what stocks could outperform in 2022. And to do that I'm joined by Arden Jennings from Ausbil Investment Management and Tobias Yao from Wilson Asset Management.

Lovisa (ASX: LOV)

First up we have Lovisa, which recently announced its CEO would be stepping down after 12 years with the company. His replacement formally worked with one of the biggest retailers in the world. It's called Inditex group. It's the parent company for Zara. Tobias, I might start on you, new global management. Is it a buy, hold, or sell?

Tobias Yao (BUY): Lovisa is a buy for us. We've always really liked the store economics of the business and the vertical integration makes it one of the most nimble brick and mortar retailers. It is exposed to the reopening theme with more people going out and attending events and parties. We like the new CEO. If you look at his long term incentive structure, some of the hurdles that they have for him is going to show very strong growth over the coming years.

Ally Selby: Arden over to you. Lovisa's share price has risen 86% over the past 12 months. Is it a buy, hold or sell?

Arden Jennings (BUY): It's a buy for us too, Ally. It's a high conviction position in both the Ausbil Australian Small Cap Fund and MicroCap Fund. Lovisa has over 550 stores operating in 21 markets globally. But the new CEO, Victor, comes with a formidable track record. He was the Global CEO of Guess, but also Inditex as you pointed out - the head of its Asia Pacific division that oversaw the rollout of over 800 stores including in India and China. And people would be familiar with Zara obviously. And Lovisa is really the fast fashion for jewellery and expanding globally. So where their current store footprint is at the moment, and where some of those global businesses have gone to thousands of stores, we think the market's probably pricing in between 1,000 and 1,500 stores. We think personally, they can go well beyond that with their global rollout strategy. So, it's a buy.

Tuas (ASX: TUA)

Ally Selby: Next up we have TPG's Singapore business Tuas. Arden, staying on you. Is it a buy, hold or sell?

Arden Jennings (BUY): It's not one that we own, but I think it's actually a buy after doing some work on it. We need to still do some more work, but I think I might have talked myself into buying it. It's the spinoff from TPG, where David Teoh is involved with the company. They're the fourth largest telco in Singapore with the opportunity to expand into Malaysia. And with a reopening of economies, this low-cost telco could really benefit.

Ally Selby: Tobias, over to you. Its share price absolutely exploded after it reported in September, I think it rose around 60-70%. Over the past 12 months though it's risen 136%. Is it a buy, hold or sell?

Tobias Yao (BUY): It's a buy for us. David Teoh is one of the most astute and successful businessmen around, having founded TPG Telecom. The reason we like TPG Singapore is the fact that we think the value offering is very, very attractive. Particularly for the large migrant worker population in Singapore. We think that David Teoh and the team can continue to grow TPG Singapore and continue to gain market share over there and potentially expand into other parts of Southeast Asia.

Electric Optic Systems (ASX: EOS)

Ally Selby: Next up we have a reader favourite, Electric Optic Systems. It's about to spin off its business called SpaceLink. Tobias, is it a buy, hold or sell?

Tobias Yao (SELL): Unfortunately, it's a sell for us. We've always found it difficult to understand the opaque nature of some of the contracts that EOS has. And the track record of the management team has been pretty average, particularly with the cash collection issues. With SpaceLink, the demerger looks very interesting, so we're taking a wait and see approach. But until then it's a sell for us.

Ally Selby: Arden, it hasn't done that well over the past 12 months - its share price has fallen around 58%. Is EOS a buy, hold or sell?

Arden Jennings (SELL): For us, it's a sell. We think there are better opportunities out there for our Funds. The company is accident-prone, as Tobias has pointed out, particularly over the last 12 months. And that's obviously been reflected in the share price. We're not particularly attracted to the business model. They have lumpy contracts with large customers. They've had cash flow issues previously as well. And essentially, it's a defence contractor. So, we're not particularly attracted to the business model. We just think there are better opportunities elsewhere.

Fundies' #1 pick for the year ahead

Ally Selby: Arden, we asked you to bring along the number one stock that you're backing for 2022. What have you brought for us today?

Arden Jennings: One we like is Jumbo Interactive (ASX: JIN). It's founder-led, Mike Veverka is the CEO. They have lotteries within their business here in Australia domestically. They've resigned with Tabcorp until 2030. The Oz Lottery change is expected to happen next year, which should increase the chance of jackpots, which we know that Jumbo is leveraged to. They're expanding offshore in a really measured and prudent way, buying businesses in the UK and Canada through Gatherwell and Stride. And we think that if they can land a US state lottery in the next 12 to 24 months, it could be game on for the stock.

Ally Selby: Tobias the same question to you. What stock are you backing for 2022 and why?

Tobias Yao: My pick today is Estia Health (ASX: EHE), which is an aged care operator. I think the aged care sector has had a very tough period over the last five years. First with the Royal Commission and then with COVID-19. Now we think the regulatory uncertainty is coming to an end and we think potentially the funding outcome from the government is going to be positive, if you look at what they said in the recent federal budget, particularly for efficient operators like Estia. There's also been a lot of M&A activity in the space. Japara, which was the other listed peer got taken over recently and Regis had another bid not so long ago. So Estia Health is my pick.

Ally Selby: Well, I hope you enjoyed that episode as much as I did. If you did, why not give it a like. And remember to subscribe to our YouTube channel, we're adding new content every week.

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