Buy Hold Sell

Buy Hold Sell: 5 stocks with fantastic fundamentals

Fri 28 Jul 23, 8:46am (AEST)
BUY HOLD SELL PrimaryYoutube (74)
Source: Livewire Markets

Key Points

  • Fundamentally sound small caps have a strong balance sheet, profitability, low debt levels, and sustainable dividends
  • PWR Holdings, Baby Bunting, Beacon Lighting, and News Corp meet these criteria
  • EVT Limited and News Corp are two stocks that the fundies believe are undervalued

For nearly 30 years, Martin Roth has published the book ‘Top Stocks’, highlighting 100 ASX companies that are considered to be financially sound. 

In conducting the analysis, the share price of a stock is ignored and the focus is on companies with strong balance sheets, profitability, low debt levels, and sustainable dividends.

More specifically, a "Top Stock" must be:

  • Publicly listed since 2017

  • A constituent of the All Ordinaries Index (i.e. Top 500 company by market capitalisation)

  • Boast a Return on Equity (ROE) ratio of at least 10% in the most recent financial year

  • Have a Debt-to-Equity (D/E) ratio of less than 70%

We’ve used similar criteria, with help from the Market Index website, to identify fundamentally sound small caps. 

So, which stocks make the cut? And are they all worth buying right now?

To answer those questions, Ben Rundle from Hayborough Investment Partners and Will Granger, from Airlie Funds Management joined Livewire's Chris Conway

And just because we know you love a stock pick, they also highlight their top stock with fantastic fundamentals. 

Note: This episode was recorded Wednesday 26 July 2023 and first published for Livewire Markets. You can watch the show, listen to the podcast, or read an edited transcript below. 

Edited Transcript

Chris Conway: Hello and welcome to Livewire's Buy Hold Sell, my name is Chris Conway. Today we're talking about stocks that are fundamentally sound, which is a stock screening tool that is available on Market Index. To do that, we're joined by Ben Rundle from Hayborough Investment Partners and Will Granger from Airlie Funds Management. Gents, thanks for joining us on the show today. 

First off, we're talking about PWR Holdings. This one is one for the rev heads out there, myself included. They make advanced cooling systems for race cars and high-performance road cars like Porsche and Aston Martin. Ben, we'll start with you. Is it a buy, hold, or sell?

PWR Holdings (ASX: PWH)

Ben Rundle (HOLD): I think it's a hold. Look, I've got to sit on the fence with this one. I think it's a very high-quality business, with a fantastic track record, and a fantastic management team. I'm a little bit nervous about owning it into the upcoming result, just given how expensive it is and how well it's owned by a lot of small-cap fund managers. Normally I'd say a buy, but I'm going to have to sit on the fence with a hold at the moment.

Chris Conway: Will, the share price is down around 20% year to date. For you, is it a buy, hold, or sell?

Will Granger (HOLD): I'd agree with Ben. I think it's probably a hold here. We really like the business. We think there's a fantastic long-term growth story as they leverage their existing IP into other adjacencies. However, a lot of that's captured in the share price, so it's a hold for us.

Baby Bunting (ASX: BBN)

Chris Conway: Next up, we're talking Baby Bunting. Of course, they sell everything that young parents could need - and boy do they know how to charge. Will, we'll stay with you. Is it a buy, hold or sell?

Will Granger (HOLD): I think Baby Bunting is a hold here. It certainly looks cheap after the recent sell-off. However, we think there are better ways to play the retail space, where you can have a little more confidence in business resilience and durability.

Chris Conway: Talking about the sell-off, it's down 45% year to date. Ben, are you seeing value at these levels? Is it a buy, hold or sell?

Ben Rundle (BUY): I think it's a buy. I don't know if we're at the bottom yet with Baby Bunting, but we have seen the stock in this position before. I think it was in 2018 - no one wanted to own it. Huge earnings downgrades and the stock followed. I think if you're looking out on a more than 12-month basis, say 18 months or two years, you'll make good money on it. So I'm going to call it a buy here.

Beacon Lighting (ASX: BLX)

Chris Conway: Next, we're running the ruler over Beacon Lighting. I recently did a home renovation, so I know these guys pretty well. Ben, we'll stay with you. Is this a buy, hold or sell for you?

Ben Rundle (BUY): I think it's a buy. I think Beacon has less cyclicality in its earnings than what it had previously given their move into trade and they've got a fantastic management team. They've grown their earnings really impressively since their listing and haven't taken on any extra capital to do so. So it's a much higher quality business these days and I think it's a buy.

Chris Conway: Will, this is another one that's been hit pretty hard this year, so far it's down 20%. Is it a buy, hold or sell for you?

Will Granger (BUY): Again, I'd agree with Ben. I think it is a buy here. There's a lot to like about the business. It's founder-managed and it has a great long-term track record. It's a dominant player in its market niche with a long store rollout opportunity. It's not expensive and it's got a good balance sheet. So we think it's a buy.

Chris Conway: We've asked the gents to bring along a stock that they think is fundamentally sound and give us the thesis. WilL, we'll stay with you. What have you got for us today?

News Corporation (ASX: NWS)

Will Granger (BUY): We think News Corp fits the bill here. They own a collection of really high-quality businesses across the media landscape, many of which have drastically improved in quality over the last decade, which we think the market has underappreciated. It's got a pristine balance sheet and it has an attractive valuation, so we think it's a buy.

Chris Conway: Ben, what about you? A stock that's fundamentally sound that you like at the moment?

EVT Limited (ASX: EVT)

Ben Rundle (BUY): I think EVT is fundamentally sound at the price you're paying at these current levels. It's about what the property value is. Maybe you can shave a 10% or 20% haircut off that. You're getting the hotel management business, the cinemas and Thredbo thrown into that as well. So I think it's a stock that at the moment has very little downside and potentially 30% or 40% worth of upside in it.

Chris Conway: If you enjoyed that episode of Buy Hold Sell as much as I did, 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.

Written By

Buy Hold Sell

Buy Hold Sell is a regular video series where Australia's leading professional investors share their views on Australian and Global Shares. This content is produced by Livewire Markets and has been syndicated to the Market Index website.

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