9 of the best stocks to buy in a sell-off

There have been many opportunities to buy some of the market's favourite stocks at cheaper prices in recent years. 

Many fortunes were made buying these discounted darlings at the bottom of the COVID-19 crash, and then again during the latter months of 2022 and throughout 2023 as markets looked out to the end of the Reserve Bank of Australia's interest rate hiking cycle.  

Take REA Group (ASX: REA), for example. The stock's share price crashed around 37% during the COVID crisis, before soaring 134% to reach new highs by the end of 2021. Over the next six months, it would cascade 43% before rebounding 88% over the past year and a half. 

And while we may not have a crystal ball to know when the next correction or crash may occur, it's worthwhile having a list of stocks in your back pocket to buy when sentiment swings to a new low. 

So as part of Livewire's Outlook Series for 2024, we spoke to 12 of Australia's brightest investment minds for the one stock they would buy if it ever sold off. 

Unsurprisingly, there were a few recurrent ideas in the mix, including three fund managers heralding REA Group as the best stock on the ASX, and two selecting Pro Medicus (ASX: PME) as the stock they would buy at a cheaper price. 

Our featured fund managers include (in order of appearance):

• Emma Fisher, Airlie Funds Management 

• Bob Desmond, Claremont Global 

• Joel Fleming, Yarra Capital Management 

• Francyne Mu, Franklin Templeton 

• Matthew Kidman, Centennial Asset Management 

• Chris Stott, 1851 Capital 

• Daniel Sullivan, Janus Henderson 

• Vihari Ross, Antipodes 

• Dr Philipp Hofflin, Lazard Asset Management 

• Marc Whittaker, IML 

• Mary Manning, Alphinity Investment Management 

• Matthew Haupt, Wilson Asset Management

Note: The information provided is not intended to be a recommendation. Please do your own research and seek advice from a professional before making any investment decisions. Past performance is not a reliable indicator of future returns.

You can watch the video by clicking the player, listen to the podcast, or read an edited transcript below. These interviews were filmed on Tuesday, 12 December 2023.

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Edited Transcript 

James Marlay: Hello and welcome to Livewire's Outlook Series for 2024. My name is James Marlay.

Ally Selby: And I'm Ally Selby. And if there's one thing I've learned in markets in recent years, it's that you need a wishlist of stocks ready to go when and if sentiment swings and the market hits a new low.

James Marlay: So in this video, we've asked 12 of Australia's finest fund managers to share the stock that they would love to own if only it went on sale.Ally Selby: Is there a stock on your wishlist that you would buy at a cheaper price?

#1. REA Group (ASX: REA)

Emma Fisher: I think the highest quality company on the ASX is REA. And I think that's really just a function of their pricing power. You think of what you sell your house for, in the millions, and then the cost of listing it is in the low thousands. So there's almost like a consumer surplus there.Now, I don't think it's a perfect company. I think you could probably run it with half the OPEX that they do. I don't know why they keep going offshore and blowing themselves up every few years. But apart from that, I think it's very high quality, and we own it vicariously through News Corp (ASX: NWS), which owns over 60% of it. 

Emma Fisher, Airlie Funds Management

#2. Hermès (EPA: RMS)

Bob Desmond: It's actually Hermès. If you look at that landscape, luxury goods, there's probably four companies that just sit at the top there. We own LVMH (EPA: MC). So Louis Vuitton and Dior sit up there, but Chanel and Hermès would be the other two. I have followed Hermès for 23 years. I've never owned it. In fact, I've never bought their products. So not only are the products too expensive for me, but the shares have just never got to where we'd be comfortable owning. But I think it's an amazing business, with family ownership, a great brand, and it's under the radar. That's probably one we'd love to own one day.

#3. Pro Medicus (ASX: PME)

Joel Fleming: Pro Medicus has been a fantastic contributor to our portfolio for a very, very long time. We're no longer in the stock, but the more that we look at it, we just continue to see that the opportunities grow for that business. They're going to be at the forefront of AI and the way things are changing. And that's one in a pullback that you would love to be able to buy.

#4. Manhattan Associates (NYSE: MANH)

Francyne Mu: I think one of the names, which we already hold in the portfolio, but I would not hesitate to add, would be Manhattan Associates. It's a company that provides warehouse management systems and the software to manage that for retailers, as well as supply chain and logistics companies. It's a great company with very strong momentum. They have re-engineered their product to be more cloud-based, and hence they've seen really good momentum, even despite the macro situation that is affecting some retailers out there. So if there was a sell-off in that name, I wouldn't hesitate to add.

#5. REA Group (ASX: REA)

Matthew Kidman: Well, the problem with stocks being a bit cheaper, is there's normally something wrong with them. But I'm assuming that the market drops and you get a chance to buy something cheaper because of the general environment. And I've said it before, but I think Australia's best domestic stock is REA, realestate.com as it used to be called. It has a 40% return on equity, it's the number one in its market, a good balance sheet, and several growth options offshore. And for the couple of times that the market has fallen in the last few years, COVID, the interest rate increases of recent times, we've bought REA and it's served us really well.

Matthew Kidman, Centennial Asset Management

#6. Pro Medicus (ASX: PME)

Chris Stott: Pro Medicus. It's got a price-to-earnings ratio, or P/E, of over a hundred times. It's gone up from 70 cents to $90 a share in the last 10 years, so one of the most successful stocks on the ASX over the last 10 years. We'd love to buy that on a pullback. Great business in the software space, well run by Sam Hupert, terrific management team, with good skin in the game. So that's certainly one that we'd certainly look to buy on a pullback.

#7. Ivanhoe Mines (TSE: IVN)

Daniel Sullivan: For a single name, we really like Ivanhoe Mines. Commodities like copper and lithium have a really good future. Clearly, lithium's been choppy and copper's been much more stable. But going forward, Ivanhoe is a very high-grade company with expansions and other projects. So that's got a lot of the elements that we really like about a company in the resource space.

#8. Microsoft (NASDAQ: MSFT)

Vihari Ross: So I'm going to actually pick a stock that we already own and that I'd love to load up more on if it sold off, and that's Microsoft. I think everyone knows the story. Cloud is in its infancy in terms of transition. We're only 20% of the way through workloads. They've got their network effects, they've got high switching costs in their enterprise customer base, and of course, they're now perfectly poised to monetize their AI investments as well. So if a stock like that were to have a wobble, that would be a time to buy even more of it.

#9. Mainfreight (NZX: MFT)

Dr Philipp Hofflin: A lot of people would probably answer that with CSL's, Cochlear's, and SaaS companies. But just to be contrarian, I'll come up with Mainfreight, which is a New Zealand transport and logistics business - a completely unglamorous industry. But for the last 20 years, it's given its investors 22% compound price growth. That's over 50 times.

And the reason for that is they just run their business differently. It's structured in very small business units, hundreds of them, and they're in a very egalitarian corporate culture. So they've entered lots of markets, and as soon as they enter, they start gaining share. So great business, very well-run. It is cyclical, so we hope that sooner or later we might get a chance to buy it.

#10. Lifestyle Communities (ASX: LIC)

Marc Whittaker: We like Lifestyle Communities as a potential investment at the right price down the track. So it's one of the largest land lease living community producers, developers, and owners in the country. It has really good demographic tailwinds, with the ageing population, retirees, and semi-retirees looking to trade down or right-size down to the right house size. It has a high return on invested capital, so really high reinvesting type business model, which we really like and it's really well positioned. Strong brand profile, a very strong niche that dominates on the fringes of the Melbourne CBD and Western Suburbs of Melbourne. That's where it really dominates. So we really like that, but it is just trading at a price that we think is a little bit too high.

#11. Ferrari (NYSE: RACE)

Mary Manning: I love Ferrari. I've talked to you and Livewire about it before. It's a stock that we own in the portfolio. But if it ever sold off, it's one that we would certainly add to. It's an extremely high-quality stock. It has amazing earnings visibility because the waitlist to get a Ferrari is over two years. So in this environment, where for certain sectors and certain stocks there's not a lot of earnings visibility, to have a stock like Ferrari, where you can see two years into the future, is like gold. So I'd still really like Ferrari.

#12. REA Group (ASX: REA)

Matthew Haupt: Yeah. I mean, the one that stands out is REA. A great, great company, with mid-50s EBITDA margins. So incredibly profitable, but it always looks expensive. You get moments, even last year or early this year, it flashed down to around $100. And now we're trading $150 to $160 at the moment. So again, it's a great company, but just looks always expensive. But you do get short moments when it comes down. But that's one that I'd be looking at.