Finding undervalued stocks and identifying companies offering bright growth prospects are fundamental to rewarding investors. Today, four experienced sharemarket experts narrow down their selections to which stocks they believe should outperform in 2024 and why investors can consider adding them to their portfolios.
Jed Richards, Shaw and Partners
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BHP Group (BHP)
Richards regards BHP Group as one of the highest quality mining companies in the world. The company’s diverse range of commodities is an appealing strength as it spreads risk across revenue and earnings. The company doesn’t rely on a single commodity to generate cash.
The company produces iron ore, metallurgical coal, copper, nickel and potash. The company operates in 90 locations throughout Australia, the US, Canada and Chile.
“I expect the strong commodity cycle, which has lasted longer than initially anticipated, to continue in 2024,” Richards says.
He says BHP generates most of its revenue from iron ore operations. Richards says iron ore prices have defied analyst expectations, with the spot price rising about 35 per cent in the past six months to December 21.
“While the economic outlook for China appears subdued, Chinese steel production continues to grow,” Richards says.
“Iron ore stockpiles have reached multi-year lows in China amid limited new supply. We believe iron ore prices will remain elevated in a tight iron ore market. Consequently, BHP’s outlook is bright.
“Analysts around the world will need to adjust their forecasts for iron ore prices and upgrade their research.”
ResMed Inc (RMD)
ResMed makes medical devices to treat sleep disordered breathing. The ResMed share price was slashed from $33.85 on August 3 to close at $21.56 on October 27. Investors were concerned that diabetes and weight loss medicines would negatively impact ResMed’s business, as obesity is widely considered a contributing factor to sleep apnoea. ResMed shares closed at $25.99 on December 21.
Richards believes investors over-reacted to the potential impact on ResMed’s business from diabetes and weight loss medicines.
ResMed’s first quarter result in 2024 appears to support Richards’ assessment, with revenue increasing 16 per cent when compared to the prior corresponding period.
Richards says: “Several structural themes continue to support ResMed’s growth in the medium-to- longer term, such as an ageing global population and an increasing awareness of sleep apnoea. Government regulation expanding the use of digital health applications provide a compelling backdrop for ResMed to continue growing resiliently.”
Michael Gable, Fairmont Equities
Fortescue Ltd (FMG)
Gable was bullish about resources in 2023, and particularly this iron ore miner formerly known as Fortescue Metals Group before recently changing its name.
“Fortescue confounded analysts throughout 2023,” Gable says. “Their bearish iron ore forecasts had Fortescue trading at levels closer to $16 at the end of 2023. Fortescue never traded anywhere near $16. It had been trading around $21 levels for a considerable period of 2023 before the latest breakout left it closing at $28.03 on December 21.”
Gable forecasts increasing Chinese demand for iron ore as the Chinese Government tackles a flagging economy with stimulus measures.
“Possibly lower US interest rates in 2024 and a softer US dollar will also benefit the resources sector,” he says. “From a charting point of view, we believe the increase in share price momentum appears to be at an early stage.”
Fortescue mined a total of 56.2 million wet metric tonnes in the first quarter of fiscal year 2024, an increase of 3 per cent on the prior corresponding period, as its Iron Bridge mine transitioned to operations during the quarter.
Paladin Energy (PDN)
This uranium company has increasingly attracted investor attention as global economies tackle the challenge of reducing greenhouse emissions. The shares were priced at 30 cents on January 4, 2021. Since then, the share price rose to finish at $1.10 on September 25, 2023. In December 2023, Paladin had been trading above 90 cent levels – at times exceeding $1 before retreating.
Paladin holds a 75 per cent interest in the Langer Heinrich mine in Namibia. During its life, the mine has already produced 43 million pounds of triuranium octoxide to date. The mine is planned to resume production in the first quarter of calendar year 2024.
Gable expects demand for uranium to continue exceeding supply.
“This imbalance comes at a time when major economies are committing to increasing their nuclear energy capabilities in order to meet net zero targets,” he says.
“Uranium prices have increased more than 60 per cent in calendar year 2023 up to December 21, and I expect this upward trend to continue in 2024. Paladin is one of the best placed Australian companies poised to benefit from increasing uranium prices during the next 12 months.”
Stuart Bromley, Medallion Financial Group
PolyNovo (PNV)
Bromley says this rapidly growing business is on the brink of transitioning to profitability. PolyNovo’s key offering is a biodegradable foam-like polymer technology that seals wounds and burns. Bromley says the NovoSorb technology enables the patient’s own cells to re-grow into and take over the bioabsorbable material, readying the area for a skin graft.
PolyNovo directly supplies more than 700 hospitals in Australia, the UK, the US, the Middle East, New Zealand, Hong Kong, Singapore, Ireland and India. Bromley says the huge Indian market provides an opportunity to increase market share.
“PolyNovo’s innovative products are competitively priced and are often significantly cheaper than competitors in major markets,” Bromley says. “Consequently, the company’s products and pricing power appeals to hospitals searching for the best available solution.”
The company generated unaudited record monthly sales of $8.8 million for November 2023. Total revenue of $66.5 million in fiscal year 2023 was up 58.8 per cent on the prior corresponding period.
“What appeals about PolyNovo is an ability to deliver revenue growth year-on-year,” Bromley says. “The company continues to expand geographically, which generates new revenue streams. The company’s investment in products and staff should reward investors moving forward. In our view, the company offers a bright outlook in fiscal year 2024 and beyond.”
XRF Scientific (XRF)
XRF makes equipment, chemicals, labware and consumable items required for preparing samples for analysis. XRF distributes its products to production mines, construction material companies and commercial analytical laboratories. The company’s technology measures the composition and purity of materials.
Manufacturing, sales and support facilities are in Australia, Europe and Canada in addition to a global network of distributors.
Bromley says: “XRF’s blue-chip clients highlight the quality of its offering, with the company servicing Rio Tinto, BHP Group, Vale, South32, Glencore and Alcoa, among others.”
XRF delivered record sales revenue of $55.2 million in fiscal year 2023, up 38 per cent on the prior year. Net profit after tax of $7.7 million was up 26 per cent. Operating cash flow of $8.4 million was up 167 per cent.
“The business, while relatively small, is fundamentally strong,” Bromley says. “We’re optimistic given the company generated revenue of $13.6 million in the 2023 September quarter, up 8 per cent on the prior corresponding period. The company generated $5.1 million in capital equipment product sales, up from $4 million in the prior corresponding period.
“We expect the forward-looking investor will also benefit from higher margin recurring revenues anticipated to flow through from the consumables side of the business, in the form of chemicals and labware required for ongoing sample analysis.”
Toby Grimm, Baker Young
Lendlease Group (LLC)
Grimm says this property developer and investment manager is recovering after experiencing difficult years during the COVID-19 pandemic. In more recent years, surging global interest rates weighed on profitability and valuation, he says.
Grimm says the company has made substantial progress by refocusing on core strengths and selling assets.
“This enabled the company to manage debt levels and finance new construction projects, which are key to delivering an anticipated 115 per cent improvement in earnings per share in fiscal year 2024,” Grimm says.
On December 18, 2023, Lendlease announced the sale of 12 Australian master-planned communities projects to Stockland Corporation and its capital partner Supalai Australia Holdings for $1.3 billion. The sale is subject to conditions, including third party consents, planning approvals and Foreign Investment Review Board approval.
Grimm says: “An earnings recovery and potential cuts in global interest rates leave Lendlease as an attractive recovery play in 2024.”
Ramsay Health Care (RHC)
RHC is Australia’s biggest private hospital operator. Grimm says an earnings recovery post the pandemic and re-opening of economies has been slower than expected due to cost challenges and rising interest rates.
Grimm says the sale of its Asian hospital unit with joint venture partner Sime Darby for about $2 billion is positive.
“The Ramsay Sime Darby Health Care sale enables RHC to reduce debt and improve firm-wide profit metrics,” Grimm says. “Also, Ramsay could explore selling other assets.
“With lower interest costs ahead, increasing patient demand and further progress on reducing business costs, we expect Ramsay to deliver a 35 per cent increase in earnings per share in fiscal year 2024.”
