The straightforward approach to picking ASX growth stocks (and 7 examples for good measure)

Note: This interview was recorded on Tuesday 22 October 2024. 

For those who love equities, you’re in for a treat with the latest Rules of Investing podcast. This week's episode features First Sentier Investors’ Deputy Head of Australian Equities Growth, David Wilson.

Running the First Sentier Geared Australian Share Fund, picking high-quality growth companies is Wilson’s bread-and-butter, and he’s not afraid to explain how he goes about it, acknowledge his missteps, and share a handful of stocks he likes right now. 

When it comes to his process for picking stocks, Wilson says it’s all “pretty logical”.

“We just try to invest in good businesses with management that are trying to do the right thing for you and with the right sort of balance sheet.

It's pretty straightforward. You can overcomplicate these things, but generally, that's our approach”, says Wilson.

Wilson adds that the team watches company management very closely: 

“What they're trying to achieve, what their goals are, but also at their actions, particularly when they make an acquisition or divestment - that's a point where you get a real insight into how a company is thinking," says Wilson.

Wilson points to Car Group (ASX: CAR) as a company with a solid acquisition history. The company is a recent addition to the portfolio, though Wilson acknowledges that he was a bit late to the party.

Another stock he particularly likes right now is pallet-maker and logistics company Brambles (ASX: BXB), saying that “the new management team has brought in a real pricing discipline over the last five years”, which has allowed them to cement a dominant position as a global leader.

In the following episode, Wilson also discusses the Fund's current overweights in tech and healthcare and names one stock from each sector that stands out (one of which is also the stock he would own if the market closed for five years).

In terms of what Wilson doesn’t like right now, he talks about the shrinking position of consumer staples and explains why they haven’t been “quite so staple” over the past year.

He also talks to sector underweights in energy, financials and materials – despite being overweight BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO). For good measure, he also shares his thoughts on Rio’s takeover of Arcadium Lithium.

Listen to the podcast to learn what keeps Wilson motivated after 40 years in markets, how he sees the current market conditions, and learn a little more about his process for picking stocks. For good measure, he'll even share with you which financial metric is a waste of time!

Other ways to listen:

Timecodes

0:00 – Intro
1:06 – David’s origin story
2:05 – Australia – a great place to invest
2:47 – Ongoing motivation
3:27 – A straightforward approach
4:02 – Focus on management
5:29 – Investing through volatility
6:46 – Current market conditions
8:47 – Impact of rate cuts
9:22 – Major risks right now
10:14 – Target rich environment?
11:08 – ASX stock: exploring Car Group (CAR)
12:00 – Core tenets of the fund strategy (and the metric David would never use)
13:25 – Overweights in healthcare and tech
14:38 – A matter of valuation
16:41 – Top healthcare and tech picks
20:41 – Not so staple
24:13 – Underweight energy, materials and financials
28:15 – Two ASX stock picks
30:36 – Highest conviction picks for the next 12 months
32:07 – What are investors getting wrong?
34:01 – David’s big win and big loss
38:07 – The five-year stock

Actively targeting Australia’s growth engine

David and his team use active stock selection to fuel a differentiated range of exposures to segments of the Australian share market, favouring companies with a demonstrated ability to reinvest earnings to compound growth over time. For more information, visit the First Sentier website or fund profiles below. 

Managed Fund

First Sentier Geared Australian Share Fund

Australian Shares

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The First Sentier Geared Australian Share Fund is likely to be appropriate for a consumer seeking capital growth to be used as a core component within a portfolio where the consumer has a minimum 7-year investment timeframe, a high to very high risk/return profile and daily access to capital.