ASX growth stocks may soon become hot commodities. The Reserve Bank of Australia is struggling with lower inflation than its counterparts in the UK, US, and EU and is expected to keep interest rates low for longer.
In recent years, the Australian Stock Exchange (ASX) has been neglected by new investors. But the ASX 200, made up of Australia’s top 200 companies by market capitalization, is now at 1,418 points, which has surpassed its pre-pandemic value. And in the last year alone, it has increased by 13%.
Inflation and Interest Rates
And, essentially for the ASX, Australian monetary policy will start to deviate from the norm in 2022. The country’s CPI inflation rate is at a manageable level of just 3.5%. Other Western nations can only look upon Australia with envy; in the UK, it is 5.5%, the Eurozone is 5.1%, the US is 7.5%.
The inflationary situation forced the Bank of England to raise the key rate to 0.5%, and HSBC expects it to reach 1.25% by the end of the year. Meanwhile, Bank of America predicts that the US Federal Reserve could raise interest rates by as much as 3%.
This negative market sentiment has led to a rapid decline in capital gains in fast-moving debt-dependent industries such as biomedicine and technology. For example, Meta Platforms and Netflix have lost nearly 50% of their value in recent months.
The relationship between rising stocks and interest rates is simple. Investors expect stock prices and rising financial performance to accelerate faster than the market average. They often rely on low-cost loans fueled by low-interest rates to achieve this. Because growth stocks are often in the early stages of development, they carry significantly higher risk, negating promises of inflated returns.
And as interest rates rise, growth rates become less attractive because they can borrow less money and face higher debt repayments. This creates a negative feedback loop, which causes capital to flow into more established value stocks that offer lower returns in exchange for safety.
But Australia is another John Dory. Although the Reserve Bank of Australia has stopped buying government bonds, Governor Philip Lowe recently pointed out that it would come as a shock to people who have just gotten used to lower interest rates. Lowe agrees that a rate hike could come in 2022 but had previously predicted 2024 as the most important time, probably due to rising rates.
And because a toxic combination of inflation and rising interest rates affects popular stock markets, the flight of capital from growth stocks to stocks can paradoxically make stocks paradoxically overvalued. This is an exception to the less popular Australian stock exchange, which has a developed market that offers opportunities for its stock to grow with a unique advantage over its international competitors.
And many companies have taken notice. In 2021, 240 IPOs were registered on ASX, raising $13 billion in the capital. And according to ASX, these IPOs are up 17% from their launch prices.
All figures below are expressed in Australian dollars unless otherwise stated.
The Best ASX Growth Stocks
GQG Partners (ASX: GQG)
This was ASX’s largest IPO of 2021, raising $1.2 billion with an initial market cap of $5.9 billion. GQG launched at $2 a share but has now fallen 24% to $1.52. With $91.3 billion under management, up from $85.8 billion in September, the company invests in active portfolios of stocks. The CIO and President Rajiv Jain recently distanced themselves from the tech action, stating that “tech is no longer the next growth point; this is yesterday’s point of growth.” The company is now focusing on base metals, utilities, and healthcare, along with heavy investments in emerging markets, including China. It is called the stock an “industry recommendation” with an “attractive assessment of flow momentum, earnings quality, and growth potential.”
29Metals (ASX: 29M)
29Metals also launched its IPO last year. It launched at $2.61 per share; the $1.25 billion copper miner is down from a record high of $3.15 in January but is still up 28% since starting trading in July. As copper trading nears an all-time high, it is believed that a long-term commodity market looms on the horizon, and there has rarely been a better time to add commodities to a portfolio. Last April, the bank even claimed that “copper is the new oil” and that “there is no decarbonization without copper.” as the world pivots net-zero, some analysts believe rising copper demand could contribute to a mining supercycle.
NextGen Energy (ASX: NXG)
This is the latest uranium miner in the bloc. It has the edge over established rivals Paladin and Australia’s Energy Resources, as it is also listed on the TSX and NYSE, giving it access to North American capital. Recent unrest in the world’s largest uranium-producing country, Kazakhstan, has highlighted the fragility of raw material supplies. Uranium is essential for nuclear energy, which currently represents 10% of the world’s energy needs.
Also, as Brent crude oil and LNG become more expensive, energy security should be a political priority. The spot price of uranium is now at $43, and Bank of America estimates it will hit $60 by the end of this quarter. The spot price got to a five-year high of $46 in November last year, matching NextGen’s all-time high of $8.60. And at $6.90 now, NextGen can be a great source of growth as demand for nuclear power grows as depleted oil reserves rise in price.
Judo Capital Holdings (ASX: JDO)
Judo is the Australian challenger bank. Its IPO in November made it the first bank to launch a new Macquarie listing in the country in 1996. At $1.98 a share, the bank is trading slightly below the IPO price, but this increase has many positive aspects. First, when interest rates finally rise in Australia, your profits will rise with them. Second, the institutions own 30% of the bank’s shares, indicating a favorable success profile. Finally, it became profitable this year and aims to increase its profits by 55% by 2022. Third, it operates in a niche as “Australia’s only challenger bank created specifically for small and medium enterprises.” It has great growth potential.
Airtasker (ASX: ART)
This is Australia’s answer to Upwork, Freelancer, and Fiverr. At 70 cents a share, the company in the labor market is trading at an all-time high. But recent second-quarter results show its gross market volume increased 39% from the prior quarter to $48.6 million, while revenue rose 37.5% from the prior quarter to reach $8.1 million. And the annual forecast for GMV is between $191 million and $194 million, an increase of 25% to 27% from fiscal 2021. The platform is growing swiftly in the UK and the US, and Australia, with a significant potential increase to 2.2million self-employed, contributing £162billion to the economy in 2020 in the UK alone.
Li-S Energy (ASX: LIS)
Li-S shares are worth $1.07 today, less than half of the all-time high but still above the IPO price of $0.85. The company raised $52.9 million in cash to “do business and research and development.” The company believes that lithium-sulfur battery technology could replace lithium-ion technology found in laptop computers, electric vehicles, and mobile phones by incorporating proprietary boron nitride nanotube technology to increase energy density and extend battery life.
Clarity Pharmaceuticals (ASX: CU6)
This was the biggest biotech IPO in Australia last year. However, at 72 cents a share, it has fallen more than 50% since its IPO in August. But Chairman Alan Taylor believes the company “will deliver outstanding clinical and business results, and we believe these results will be a notable catalyst in generating capital growth for our shareholders.”
The company is developing several radiopharmaceutical treatments for cancer-based on its own SAR technology that enables “superior imaging and therapeutic characteristics of radiopharmaceuticals, meeting current logistics and production constraints.” SARTATE’s lead product is in clinical trials for neuroblastoma and neuroendocrine tumors. We can say that the decline in its share price reflects uncertainty, but a twist could cause it to fly.
Block (ASX: SQ2)
Block (ASX: SQ2), formerly Square, is now publicly traded on the NYSE and ASX. According to ASX Group CEO Max Cunninghan, Block CEO Jack Dorsey’s decision “could be BHP’s largest ASX listing in 1885”, he said, is very, very significant.
With a market capitalization of $56 billion, it is one of the biggest companies on the ASX, but it continues to grow. Square processed $112 billion in payments last year, a fraction of Mastercard and Visa, which processed more than $800 billion in transactions. But the volume of its transactions increased by 40% in the first three quarters of this year compared to the previous one. And it’s following in the footsteps of Apple, Alphabet, and Meta by investing in various experimental projects to see what works.
Block recently acquired Afterpay, Buy Now Pay Later, for $29 billion. Afterpay only went public on ASX in 2016, with a market capitalization of $165 million. Dorsey’s overall plan is to create a tech conglomerate, with Square, Afterpay, peer-to-peer payment service Cashapp, music streamer Tidal and cryptocurrency developer TBD54566975 working together for symbiotic benefits.
Altium (ASX: ALU)
This software company provides PC-based electronics design software for engineers designing printed circuit boards (PCBs). At $34 per share and a market cap of $4.5 billion, Altium is down from last month’s record high of $41. However, its 5-year return on working capital is impressive at 22.7%. Additionally, FY22 revenue growth is between 16% and 20%, between $209 million and $217 million.
Management is so confident in its growth prospects that Altium rejected a $38.50 takeover bid from Autodesk in June, calling it “significantly undervalued.” At that time, it represented a 41% premium to the stock’s closing price. The Altium 365 platform already has more than 17,000 active users and 7,000 active accounts, and management intends to continue its market dominance in this niche computing area. Altium could be to PCBs what Arm is to semiconductors in the long run.
Nitro Software (ASX: NTO)
It fell to $1.78 per share, less than half of November’s high of $3.88. The company’s $400 million Nitro productivity suite offers electronic signature tools and built-in PDF support for customers. Encouragingly, Goldman Sachs estimates that Nitro has a total addressable market of $34 billion and has set a 12-month price target of $2.95 per share.
Its fourth-quarter results posted a 26% year-over-year increase in revenue to $72 million and added Deutsche Bank to its list of clients. Goldman Sachs believes that “Nitro operates in large, under-penetrated markets, supported by tailwinds of structural growth, including remote working, enterprise digitization, and e-signature adoption.” long-term investment potential.
Haley Hayward is an experienced writer at gblogo.com, where she’s credited with more than 200 articles covering everything from entrepreneurial stories to mental health at work.
She also oversees the Comment&Questions, which poses important admission questions to experts in the field, and regularly hosts webinars on various aspects of the business school experience.
Prior to joining gblogo.com, Haley honed her skills as a freelance writer, tackling a wide array of topics from petcare to car maintenance.
Haley holds a Master’s degree in English Literature from the University of Edinburgh, Scotland.