Slack Investor has never seen the film, though well reviewed, but he did struggle through the complex book by John Irving in the late eighties. His interest in GARP has been rekindled by a new ‘Smart Beta’ ETF that has been floated by Global X in October 2024. This one is fresh!
Smart Beta refers to an enhanced indexing strategy that seeks to exploit certain performance factors in an attempt to outperform a benchmark index – Fidelity
This is good … is it possible to get the benefits of passive investing with some of the advantages of active investing strategies? Can you have low fees with better performance than benchmarks? Perhaps all the hard work in selecting growth stocks can be done with a financial selection algorithm and Slack Investor can get back to the couch.
Growth at A Reasonable Price (GARP) … in an ETF … am I dreaming? Is this too good to be true? Ahh … there is a management fee. But, it’s 0.3%. Not bad for a fund that has some selection smarts plus international exposure. There is a lot to like about this ETF.
Selection Process for GARP ETF
The GARP ETF tracks the S&P WORLD EX-AUSTRALIA GARP INDEX using a rules based stock section process. From the global shares universe, all companies are assigned a Growthscore for their previous 3-yr growth. Then there is a Quality score that combines company assetsto debt ratio, return on equity (ROE), and the earnings to price ratio (Inverse of P/E Ratio).
Once the ranking is complete, shares are selected that score highly in both categories and some restrictions on exposure to individual shares and sectors is applied – Mark LaMonica, Morningstar
So, by weeding out some of the companies that are ‘unreasonably’ priced the top 250 global companies are selected according to GARP principles. The price (P/E Ratio) filter should help mitigate the portfolio downside in a market downturn.
Performance
The GARP ASX ETF has only been running a month but Morningstar has gathered some data based upon the GARP principles over time.
GARP seems to perform better than the S&P 500 in some time frames, particularly in the periods that include a share crash. The 5-yr period includes the 2020 ‘Covid Crash’ and, the 20-yr frame includes the 2007–2008 financial crisis (GFC). But these are just index values – without fees. When you factor in the GARP management fee of 0.3% compared to the iShares S&P 500 ETF (IVV.ASX) fees of 0.04%, the outperformance of GARP does not look as good.
There are a lot of tech companies in here but also some consumer discretionary stocks. Some of the more expensive (high P/E ratios) tech companies must have been filtered out by the GARP process. It is only when Slack Investor takes a closer look at these companies that he starts to get ‘cold feet’. Overall, Slack Investor thinks this is a good package to get exposure to reasonably priced growth companies. Two things that hinder Slack Investor from investing are :
In the the top 15 holdings, there are 3 Petrochemical companies – Exxon, Chevron and Shell.
Slack Investor will admit to some hypocrisy here. He owns a 15-yr old petrol driven car and regularly uses jet fuel to get to far away places. On the plus side, his roof is making renewable energy. However, the world is getting hotter and he’s aware that we must continue to work toward phasing out the use of fossil fuels. Are you listening Donald?
Slack Investor is a part owner of all types of companies through index and broad market ETF’s (e.g. VGS, STW, S&P 500 Index, etc). However, he has a ‘piddly’ moral stance of trying not to bundle into the Slack Portfolio any ETF’s that activelyselect higher proportions of Tobacco, Gambling or Fossil Fuel companies.
Is this making a better world? Probably not. But, leave Slack Investor alone to pursue his token activism – no harm done. Besides, it’s likely to be better than doing nothing. This is a personal thing and, Slack Investor encourages all investors to take on any sort of investment stance that feels right for them – providing it is profitable in the long term.
Dramatic falls in a stock price … are not very nice. However, they are part of the game when investing in growth stocks. These falls usually come during reporting season. This is sometimes known as ‘confession season’.
ASX-listed companies are all required to report their earnings within two months of June 30 and December 31. The half-year reports are usually floated into the market during August and February – and this is the main time that the confessions come in. ASX companies can also give quarterly updates and, they are strictly bound by ‘Continuous Disclosure’. This is where they are obliged to promptly announce any new information that may affect the stock price.
Once an entity becomes aware of any information concerning it, that a reasonable person would expect to have a material effect on the price, or value of the entity’s securities, the entity must immediately tell ASX that information – ASX Continuous Disclosure Guide
When bad news comes in, there will be an announcement and there is usually a fall in stock price. Most of the time, bad news comes in the form of an earnings forecast not being met – an earnings downgrade. It is time for Slack Investor to get off the couch.
Slack Investor is not a ‘Day Trader’ and, also Slack! This means that he doesn’t get wind of a dramatic fall in one of my holdings till the end of the day. Sometimes it is even days after the event.
This gives him time to think about what to do next, and there are two schools of thought.
Accept the loss and sell the stock to employ your funds elsewhere – as bad news often comes as a series.
Reassess the numbers on the company and ask ‘Would you invest in this company today at the current price?‘
Experience tells Slack Investor that he is usually better off with option 1 – and investing the proceeds with a, hopefully, price increasing stock.
Recent Case Studies from the Slack Investor Rogue File
This was a sudden fall from grace as it was bought in August 2024. There was an earnings downgrade and it was an easy decision to get out – as no ‘love’ had been developed for the company. Slack Investor was wrong on his understanding of this companies earnings growth.
Webjet (WEB,WJL)
This is a complex one. Slack Investor recently bought Webjet (WEB) at around $9 on the basis of their fast growing internet business WebBeds – and its seemingly good projected numbers. In September 2024, Webjet went through a demerger that split the business into its retail Travel Agent (Webjet Group – WJL.ASX) and its global Business to Business booking site, mostly WebBeds, (WEB Travel Group – WEB.ASX). Webjet announced a profit warning on 14th October and the share price plummeted 35% in a day. Whoops!
Slack Investor planned to sell WJL, the retail travel agent part of the business (not a high growth sector), and keep the growing (+22% CAGR) demerged WebBeds (WEB). This might be a good business one day – but the big 35% drop spooked him and he sold them both for a combined price of $4.80. Ouch!
Slack Investor thinks this is a good growing business but they had some revenue shortfalls that caused a 19% 1-day price drop in 2022. He probably should have got out then. However, he has grimly stuck with them and, after 2 years of falling stock prices, they seem to be on the right track. It remains in his portfolio.
After a 16% fall in a day in May 2024, Slack Investor reassessed the numbers on this stock – a projected 2026 PE of 16 and an ROE of 39%. The numbers looked pretty good – and he held on. However, the last two years of revenue growth have been 2% and 4% respectively. Slack Investor is not sure what is going on … but this company has not been growing. He sold at $8.69 this week.
Taking a loss … and moving on
This is a real skill – that doesn’t come easily – but is essential for managing a portfolio of growth stocks. Slack Investor is better at this than he used to be. Usually, growth stocks will come with a high Price/Earnings ratio as the future earnings growth will be factored into the price of the stock. These type of companies are particularly susceptible to a rapid decline in price when bad news emerges that might affect future earnings.
“Some people automatically sell the ‘winners‘— stocks that go up— and hold on to their ‘losers‘— stocks that go down— which is about as sensible as pulling out the flowers and watering the weeds” – Peter Lynch – One Up On Wall Street
Slack Investor tries to adhere to the Peter Lynch philosophy when tending to his garden of stocks. He doesn’t always get these decisions right – but he does find it ‘cleansing’ to get rid of the bad performers. With experience, he has found that, more often than not, if there is a dramatic 1–2 day fall in a stock price (>15%) – it often takes a while to recover! Slack Investor is usually happy to take the loss and move his funds elsewhere. There is ‘opportunity cost’ in staying with a stock that is going nowhere.
Despite these bad performers, he doesn’t beat himself up about them. It is just part of investing. He takes solace that his whole portfolio is up about 8% in the 4 months of this financial year – and he does have good long-term results.
With the money raised from selling the dud investments, he bought into quality earnings with half the proceeds topping up his Supply Network (SNL) holding. The rest went into a new stock that he has been watching for a while – the logistics software business WiseTech (WTC).
The company had a price drop over a saucy scandal involving the founder and CEO Richard White. He resigned and Slack Investor is betting that these private-life dalliances should not interrupt the fine profitability (ROE 2026 20%) and established revenue growth (1-yr 2024 CAGR 20%) of this great Australian company.
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
All markets drifted down slightly. As many of the big market crashes have occurred in September and October, Slack Investor is always relieved to get past this time of year.
For October, the ASX 200 (-1.3%), the FTSE 100 (-1.5%) and the S&P 500 (-1.0%).
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
The takeover of Altium (ALU) has been done and Slack Investor had some cash at his disposal. At the end of April 2024, he went through the Slack Process of deciding which stocks to buy with the money that Altium was about to provide. In the spirit of this great company, he concentrated mostly on growth stocks and presented the list below.
Some of the stocks that Slack Investor owns are like old friends. He is always looking to add to ‘tried and true’ stocks with a good track record of growth and good management. All of the above were considered. However, as REA was already a large holding (7.9%), Slack Investor passed on REA. He did buy some TLX and also added to his holdings of TNE, SNL, NDQ, CAR and PME.
One thing he insists on however, is that they have a pleasing income chart that shows both historical growth (Black bars) and projected growth (Grey bars) – from Marketscreener.
Income growth and projected growth for XRF Scientific – From MarketScreener – Financial tab
As well as increasing income, Slack Investor likes his stocks to be profitable – a projected ROE (in 2026) to be more than 15%. He also wants them to be not too expensive – a projected P/E ratio (in 2026) of less than 40-50. Of course, he also screens for growth, using the 3-yr CAGR – and hope that it is also above 15%.
Slack Investor is not sure how any of these stocks will fare – but if you get the numbers right, good things will happen on most occasions. The 3-yr CAGR for Nick Scali is low at 8%, but past results were affected by COVID 19. Slack Investor has bought some NCK as they have just expanded into the UK and, if anyone can make this work, it will be the crack management team at Nick Scali.
Company
Ticker
ROE 2026
P/E 2026
CAGR 3-yr
Buy Price
Price 9/10
Megaport
MP1
25
37
35
$9.03
$7.39
Nick Scali
NCK
36
13
8
$13.73
$16.13
XRF Scientific
XRF
18
20
24
$1.55
$1.70
Betashares Diversified Growth
DHHF
–
–
–
$34.01
$34.78
Botanix Pharma
BOT
27
18
–
$0.37
$0.37
Betashares NextGen NASDAQ
JNDQ
–
–
–
$15.47
$15.80
Webjet
WEB/WJL
16
22
16
$9.03
$7.89
RPM Holdings
RUL
15 (?)
39
18
$2.57
$2.86
These newer stocks are in the Slack Investor ‘nursery’ for now. Sometimes a company looks good on paper – but fails to keep growing for a number of reasons (often these reasons are opaque to Slack Investor)! While in the nursery, Slack Investor keeps a weekly watch and if they fall below the buying price by around 15%, he will usually cut his losses and sell.
This happened to Megaport (MP1). He sold the holding a few weeks ago for around $7.90. Webjet (WEB) has just gone through a stock split into WEB and WJL – and is on a close watch.
Slack Investor is off on holiday to Thailand tomorrow … and, has pushed this post out early (before his usual mid-month burst of activity).
The percentage yearly returns quoted in this post include costs (brokerage) but, the returns are before tax. This raw figure can then be compared with other investment returns. I use the incredibly useful Market Screener to analyze the financial data from each company and extract the predicted 2o26 Price/Earnings (PE) Ratio and Return on Equity (ROE). This excellent site allows free access (up to a daily limit) to their analyst’s data, on the financials tab for each stock, once you register with an email address.
Slack Investor Stinkers – FY 2024
Financial year 2024 was generally a “boomer”. All of Slack Investors followed markets (Australia, the UK and the US) have had a pretty solid year … especially the US! However, Slack Investor knows that stinkers are a part of the game, even in good years – and managed to attach himself to a few stinkers along the way.
Global X Battery Tech & Lithium ETF (ACDC) -15%
(ACDC –2024: PE 11, Yield 3.0%) I have owned this ETF for 3 years now – and I think I might have fallen for the “Theme Dream”. Despite some early promise in the “sexy” sector of electric cars and lithium batteries, this ETF has started to disappoint. There has been a string of bad news in the electric vehicle sector with an oversupply of vehicles. Both the EU and the US have slapped large tariffs on the Chinese EV exports – this has further slowed demand. Slack Investor is just holding on and has set a stop loss at $82. Current price is about $83, so I am very close to selling – and moving on.
Coles Group (COL) -8% (Mostly sold Nov 2023)
(COL – Forecast 2026: PE 19, ROE 32%) Coles is where I often buy my groceries and I like the idea that you can regularly inspect your holdings. However, Coles Group are profitable but not really growing. This company does not really belong in my investments pile, so I mostly sold this holding. I might buy some for my stable income pile if there is a future weakness in price.
Computershare (CPU) -5% (Sold April 2024)
(CPU– Forecast 2026: PE 16, ROE 36%) Computershare was a stinker last FY for Slack investor. In retrospect, I can’t believe Ibought in again for further punishment. I keep falling for the high ROE (36%) and relatively low PE (16) for a tech stock. Might have been a little early here in folding again – the share price has risen about 12% overall in FY2024.
Slack Investor Nuggets – FY 2024
Nuggets were everywhere this Financial Year. Slack Investor continues to invest in high Return on Equity (ROE) companies with a track record of increasing earnings. Companies with these qualities sometimes behave as “golden nuggets”.
Pro Medicus (PME) +118%
(PME – Forecast2026: PE 76, ROE 46%) Pro Medicus is a developer and supplier of healthcare imaging software and services to hospitals and diagnostic imaging groups. In 2019, Slack Investor met the CEO and co-founder of Pro Medicus, Dr Sam Hupert. I was impressed by his humility and passion for his great products. I’m obviously glad I bought in – but naturally wish I’d bought more! The very high predicted PE ratio (+76) is worrying but, in the past, product sales have just kept growing above expectations as PME expands into the US.
Altium (ALU) +106% (Sold pending takeover)
(ALU – Forecast 2026: PE 32, ROE 33%) Altium is an Australian based developer and seller of computer software for the design of electronic products worldwide. My ode to this great company expands on why I originally bought it and its great management team. Good luck with the new Japanese owners Renesas. For current holders, I think the cash payment per share is due today (1 August, 2024)
Goodman Group (GMG) +75%
(GMG – Forecast 2026: PE 23, ROE 12%) Goodman Group owns, develops, and manages (mostly industrial) properties all over the world. On a weekly bike ride, I go past a succession of Goodman warehouse properties – and they always seem to be thriving with activity. They even develop data centres that will hopefully be full of machines to manage the AI trend. Glad to be an owner.
Codan (CDA) +54%
(CDA – Forecast 2026: PE 20, ROE 21%) Codan is a technology company that specializes in communications and metal detecting. It is one of Slack investors core holdings that has taken him on what can only be described as a “journey”. A nugget in FY 2021 (+161%), a stinker in FY2022 (-58%) – and now back to a nugget (+54%). What has kept me in the stock was the low debt (generally) increasing earnings, and the high profitability (ROE 21%).
Supply Network (SNL) +54%
(SNL – Forecast 2026:PE 18, ROE 36%) Supply Network are a bus and truck parts distribution company using the Multispares brand. Although there are competitors in the big-vehicle parts business, what sets SNL apart from the rest is their great management and strict adherence to processes and efficiency. They have consistently held a profitability advantage over their rivals. They have maintained a high Return on Equity (ROE) of 36% even as the company has expanded and grown in price.
Alphabet (GOOGL:NASDAQ) +52%
(GOOGL– Forecast 2026: PE 17, ROE 25%) For more good things on this company that is everywhere. High profitability (ROE 25%) and the predicted 2026 PE of 17 makes this still a good buy at current prices – in Slack Investor’s head.
CAR Group (CAR) +52%
(CAR – Forecast 2026: PE 31, ROE 14%) Car Group is a collection of digital marketing vehicle businesses that are now in Australia, Brazil, Canada, Chile, China, Malaysia, New Zealand, South Korea, Thailand and the United States. The Australian business is still carsales.com. The ROE is slipping below 15%, but happy to hold on for now.
REA Group (REA) +39%
(REA – Forecast 2026: PE 41, ROE 32%) Like Carsales.com, REA has dominated the space left by the old newspaper classifieds in selling real estate in Australia and has continued to expand overseas. A high PE ratio (41) but while projected Return on Equity (ROE) remains high (32%), this is OK.
Wesfarmers (WES) +39%
(WES – Forecast 2026: PE 27, ROE 33%) Wesfarmers is Australia’s largest conglomerate. Great retail outfit (e.g. Bunnings) and chemical manufacturer. High profitability (ROE 33%) but like Coles, seems low on earnings growth lately.
Some honourable mentions to some top results this year that didn’t make the nuggets. BetaShares NASDAQ 100 ETF (NDQ) +32%; BetaShares Global Quality Leaders ETF) +27%; BetaShares Global Cybersecurity ETF (HACK)+26%; Dicker Data Limited (DDR.AX)+26%. A special mention also to a recent buy, Telix Pharmaceuticals (TLX) +23% in two months!
Slack Investor Total SMSF investments performance – FY 2024 July 2024 end of Month Update
Slack investor has just two piles of funds for his retirement – the Stable Income pile (Cash and Conservative) and an Investments pile. The Stable income represents just 25% of total retirement funds. I used to rebalance each of my piles after every year, but the stable pile now has enough in it that, together with dividends from my investments, could supply me with enough living expenses to last out an extended (3-yr) bad run of the stock markets – without having to sell stocks. The stable pile produces a moderate return of about 5%. The Investments pile is much more fun and the figures below represent (before tax) performance of my investmentspile only.
After a difficult 2022, a solid 2023, some very good fortune was had with a ripper FY2024. Some fortuitous selections with growth stocks have really paid off (Thank you PME and ALU). In the Australian superannuation scene, the median growth fund (61 to 80% in growth assets) returned +9.1% in FY 2024. The ASX 200 chart shows a gradual climb after a shaky start for the financial year.
A record result for Slack Investor in his growth investments portfolio. His preliminary total SMSF performance looks like coming in at around +39% for the financial year. Including the relatively low returns from my stable income pile (~5%) – overall, my retirement funds grew about 30%. A very good year!
For Slack Investor, the 5-yr performance is a more useful way of measuring – as it takes out the fluctuations of yearly returns. At the end of FY 2024, the Slack Portfolio has a compounding 5-yr annual return of around 13%.
July 2024 – end of Month Update
The new financial year has started off positively for Slack Investor markets. The ASX 200 + 4.2%; FTSE 100 +2.5%; and S&P 500 +1.1%. He remains IN for all index positions.
I have taken the opportunity to adjust upwards the stop losses on all followed index markets. The prices have crept up to more than 15% above their old stop losses. See Index pages for details.
All Index pages (ASX Index, UK Index, US Index) and charts have been updated to reflect the monthly changes.
This continues the series of judgement – on a few calls by Slack Investor in recent blogs. The good and the bad are presented – to illustrate that you don’t have to get everything right to be a successful investor.
I tried to make the case that the ASX 200 was both undervalued and showing signs of momentum in the charts. At the the publishing dates, the ASX 200 was trading at 7328 and 7267. At 30/06/24, it is 7767, up 5.9 % and 6.8%. In the meantime, the US S&P 500, which Slack Investor thought was overvalued at the time, is up 32% for the same period. Could do better, Slack Investor – 5/10
I went through a whittling down process for a few stocks that might be suitable for my nephew who was just starting out on his investing journey. I wanted to gather a basket of well known, growing companies that were not outrageously over priced- I generally don’t like the predicted P/E Ratio to get above 40 when I’m buying, as this indicates the current price of the company is 40 times its predicted earnings (expensive) . The yield (dividend) is not that important to a young investor, it is the total growth that counts.
Looking at the figures, even Slack Investor is surprised with the success of his suggestions after only 12 months – an average 1-yr growth of +34.2%.
Again, Coles Group (COL) is the only dud. Despite COL having a high Return on Equity (ROE), I should have considered the competitive retail environment, its lack of history of growth and how it was spending most of its profits – returning to shareholders as dividends, rather than growing the business.
I hope that my nephew took this advice and is now a convert to stocks as a way to make your money grow. A top effort Slack Investor9/10; Nephew?/10
I went through the Slack investor buying process and I had to narrow things down to the one new share that I would buy at the time with a limited amount of funds. I selected Computershare (CPU). In hindsight, I should have trusted my gut here – I have never liked their confusing website! At the the publishing date, CPU was trading at $25.85. At 30/06/24, it is $26.34, up 1.8%. I had sold out of this stock, at a loss, 5 months after I bought it as I didn’t like the way that the chart was heading. A dud trade Slack Investor – 1/10
Slack Investor went a bit in depth here as to why Alphabet (NASDAQ : GOOGL) was such a major portion of his portfolio. At the the publishing date, GOOGL was trading at $137.36 USD. At 30/06/24, it is $182.15 USD, up 35%, A good trade Slack Investor, is this all your own work? – 9/10.
I am delighted to report that Centrelink have sent me a Commonwealth Seniors’ Health Card (CSHC). I have yet to make use of it … but I am excited that my perseverance with the forms (with the help of very generous new annual income limit rules) has paid off. You really tried hard here Slack Investor8/10; Centrelink 3/10 – The application process is confusing and tedious. The turn around time for the application was about 2 months – but, I don’t blame the workers at Centrelink here – there has been chronic underfunding in staff and processes for years.
Financial Year 2024
A quick review of how the Slack followed markets fared in FY 2024 – pretty well I might say!
ASX 200
ASX 200 Weekly chart for FY 2024 (Click to Enlarge) – From Incredible Charts
After a solid 2023, FY 2024 could be described as a slow start – but big finish. In raw figures the Australian Index rose 7.8 %. When accumulated dividends are re-invested, the ASX 200 Net Total Return, the yearly returns are more impressive, up 12.2%.
FTSE 100
FTSE 100 Weekly chart for FY 2024 (Click to Enlarge) – From Incredible Charts
This bad boy has shown great improvement. The UK Index rose 8.4 %. When accumulated dividends are re-invested, the FTSE 100 Total Return was up 11.4%.
S&P 500
S&P 500 Weekly chart for FY 2024 (Click to Enlarge) – From Incredible Charts
That crazy country, the mighty US of A, has done it again. the US Index rose 22.7 %. When accumulated dividends are re-invested, the S&P 500 Total Return was up a mighty 24.2%.
Slack Investor does not provide specific advice, but occasionally he will expand on the way he invests and report on the things that he is looking at. I will sometimes mention actual stocks or financial products that I am interested in.
I don’t regard myself as a gun “stock picker”- my long-term success rate for “winning” stocks is about 55% for completed trades over a 20-yr period. What I think I am OK at though, is weeding out the dud trades and sticking with the winners. My overall results are good. I find that if you surround yourself with solid growing companies – more good things will happen than bad things.
I think a couple of follow up posts are in order to pass judgement on some of the good, and bad, ideas that Slack Investor has thrown out into the world.
Slack investor had a bit of loose change and was “on the buy”. I outlined my case for Alphabet (GOOGL.NASDAQ), the Betashares NASDAQ 100 ETF (NDQ.ASX), and the Coles Group (COL.ASX).
Slack Investor was looking at technology changes in the music Industry using one of the more interesting charts that he has found. Who knew that “Peak Revenues”, from cassettes was in 1980, from CD sales in 1999, and peak music downloads in 2005. The only music revenue games in town now, are streaming, and live performances.
This was a roundabout way of showing the profound effect and fast moving pace of technology. I suggested a good way to capture this technology tidal wave was Betashares NASDAQ ETF(ASX: NDQ). The share price at publishing time was $32.47, at 30/06/2024 it is $45.51, up 40.1%. Well done Slack Investor– 8/10
The human trait of innovation was explored and this was also seen to be a great attribute for companies that I would like to invest in. A simple way to expose yourself to innovation on the Australian market was through ETF’s. Betashares NASDAQ ETF(ASX: NDQ), BetaShares Asia Technology Tigers ETF (ASX: ASIA) and the ETFS Morningstar Global Technology ETF(ASX: TECH) were thought to be a way to do this.
ETF
Price 30/06/23
Price 30/06/24
% Growth
NDQ
$35.25
$45.51
+29.1%
ASIA
$9.29
$9.21
-0.6%
TECH
$101.90
$95.9
-5.8%
Average Growth
+7.6%
Some “Innovation” ETF’s
With the exception of NDQ, not so good here and it is another internal warning to avoid the over-curated themed ETF”s. I am sill investing in NDQ, but I sold out of ASIA after 9 months as China was adding some “government risk” to their stock market. Fortunately, I didn’t get around to investing in TECH. An inconsistent effort, Slack Investor seems easily distracted – 5/10
One of the Slack favourites, CSL, asked shareholders to stump up some money in a Share Purchase Plan. The asking price was $273 – which I thought was OK for such a great, growing company. The share price at 30/06/24, is $295.21, up 8.1%. A solid performance, Slack Investor, but not shooting the lights out – 6/10
I liked the look of Dicker Data (DDR) after a slump in its share price. At the the publishing date, DDR was trading at $10.44. At 30/06/24, it is $9.66, down 7.5%. Since November 2022, there has been a downgrade in profits and the CEO has sold 10% of his shares. The forecast numbers still look OK, but so far disappointing. DDR is on shaky ground – and could get the chop! Needs Improvement, Slack Investor – 2/10
Slack Investor had a “bit of a go” at famous US investor Cathie Wood and her ARK Innovation ETF (NASDAQ: ARKK). My case was, that their was a lot of talk … and not much performance from her $6 billion USD actively managed fund. The price chart has continued to languish, and her 5-yr performance figures have got worse – and well behind the performance of the passive S&P 500 and NASDAQ 100 ETF’s. The 5-yr trailing annual return for ARKK is currently -1.6%. Compared to the NASDAQ 100 (20.5%) and the S&P 500 (15.0%). It seems as if Ms Wood’s Mojo has deserted her for now. Cathie Wood – 1/10; Passive US Funds – 9/10
The financial year closes and the Australian, UK and US markets are all in positive territory.
Slack Investor remains IN for all followed markets. The ASX 200 (+0.9%) and FTSE 100 (-1.3%) didn’t move much for the month. It is a continuation of good times in the US with the S&P 500 rising 4.6%. There has been a big gain in the US market this financial year of 22.7%. On top of an increase of 16.4% last financial year, Slack Investor is getting a little nervous about the US – especially after the debate last week!.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.
After narrowing down my personal buying list to just 5 stocks – BetaShares NASDAQ 100 ETF (NDQ), Telix Pharmaceuticals (TLX), Technology One (TNE), Supply Network (SNL) and REA Group(REA), Slack Investor is always keen to get a second opinion – and that’s where the “fish whisperers” come in.
At this stage, I have so far bought into just one of the prospects (TLX) as, I’m hoping for a bit of a price contraction in the other stocks over the June/July period. I am not in a particular hurry to buy – as there has been recent news of “Interest cuts delayed” that might present a bit of downward pressure on stocks.
Sometimes, it makes sense to listen to the “Fish Whisperers” – those with special knowledge of the stock market. One of the financial sites that I will always look at for ideas is Livewire. Slack Investor is a subscriber to their free financial news email – just register with them. There is nothing more that I like than to saddle up to the hard work of financial experts – the hard thing, of course, is sifting through the chaff, for the wheat. But there are ways of identifying quality information – Do their methods echo with your own sound thoughts?
Let’s first have a look at Michael’s established record. He helped set up a Medallion Australian Equities Growth Fund in March last year, so there is only limited data on performance as there is a short track record. The fund growth since inception is very good (net 12-mth performance (+17.69%) – c.f ASX 200 (+10.68%) – but you would have to say that these are “early days”. Consistent long term fund performance is notoriously hard with 75% of Australian Mid to Small Cap funds underperforming the index over 10 years.
Medallion charges a management fee of 1.5% plus an outperformance fee of 20% (Oooohhh … that hurts!!) – but in fairness, their net results are, so far, exceptional – and their methodology of screening stocks looks fundamentally sound.
Long Term Compounders
These are three of the most beautiful words to Slack Investor – they exactly describe the type of stocks that I want to own. A stock that will generate growth over the long term. Let’s have a more detailed look at how the Medallion Financial Group approaches this search for long term compounders.
A consistent compounder is essentially a business that’s able to deliver consistent or persistent earnings and revenue growth over time in a reliable nature. So these are businesses that are price makers, not price takers
Michael Wayne prepared the list by screening the whole ASX for companies that have a five-year sales Compound Annual Growth Rate (CAGR) of above 5%, and a CAPE 10-year CAGR of more than 5%. Slack Investor is happy to have a further look at all of these companies.
These businesses also have a dividend per share CAGR over 10 years of more than 5%, five-year average gross margins above 10% and a five-year average return on equity over 10%. Yes Michael … keep up this research – as this is the sort of stuff that makes Slack Investor swoon!
May 2024 – End of Month Update
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
There is a bit of end of Financial year calm with the ASX 200 (+0.5%). The FTSE 100 (+1.6%) is moving on and, in a moment that seems to celebrate ex-President Trump’s guilty verdict on all 34 counts of falsifying business records, the S&P 500 moves on (+3.7%).
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
After the excitement of catching a fish there is the relatively unpleasant process of gutting the fish before things get exciting again – the cooking and the eating!
Same with stocks, the financial media is full of “darling” stocks. However, Slack Investor likes to take a deep look into the entrails before parting with his precious funds for the glorious pleasure of share ownership. The data gathering is not the most exciting part of investing and Slack Investor likes to keep things simple here – and finds the best way to sort out the worthy fish is to put them on a list with a few relevant numbers ” the guts”.
The companies that Slack Investor did a bit of research on is not definitive … I usually look into my own portfolio first to see if the investment case still stands … and, if the company has been performing well, I like to add to my holding.
The newer stocks come from a variety of sources – usually the financial press. I tend to stay away from mining and retail stocks because of the uncertainties present in these sectors. As these potential buys are a replacement for my largest portfolio member, Altium (Potential Takeover target), I have concentrated on the “growth stocks” The first screening is for growth using the CAGR and the ROIC.
Gather the Data
I have put all my prospective BUYS in a list
Company
Ticker
ROIC 23
CAGR 3-yr
Alphabet (US)
GOOGL
24
19
Altium Ltd
ALU
23
13
Audinate
AD8
12
32
Car Group
CAR
7
25
Cochlear Ltd
COH
17
14
Codan Ltd
CDA
14
9
CSL Ltd
CSL
10
13
Dicker Data
DDR
16
4
Fisher & Paykel Healthcare Corp Ltd
FPH
14
8
Microsoft (US)
MSFT
29
14
NextDC
NXT
-133
22
NVIDEA Corp (US)
NVDA
66
54
Pro Medicus
PME
50
30
REA Group Ltd
REA
20
16
Resmed
RMD
15
13
Seek Ltd
SEK
-1
-8
Supply Network
SNL
24
23
Technology One
TNE
30
13
Telix Pharmaceuticals
TLX
35
380
WiseTech
WTC
60
24
Xero
XRO
-5
23
The list needs a bit of narrowing down so I applied a filter to reduce the field to a top 10. I refined the list to those companies that have a historical ROIC of greater than 20% and a 3-yr CAGR of greater than 12% – this now becomes a list of great, profitable, efficient companies that are growing. I also added Forecast P/E ratios for 2026 from MarketScreener.
Company
Ticker
ROIC 23
CAGR 3-yr
P/E 2026
NVIDEA Corp (US)
NVDA
66
54
26
WiseTech
WTC
60
24
60
Pro Medicus
PME
50
30
82
Telix Pharmaceuticals
TLX
35
380
35
Technology One
TNE
30
13
33
Microsoft (US)
MSFT
29
14
26
Alphabet (US)
GOOGL
24
19
18
Supply Network
SNL
24
23
21
Altium Ltd
ALU
23
13
45
REA Group Ltd
REA
20
16
36
The Price/Earnings Filter
The above list represents some profitable, growing companies – but they might be priced too highly. Slack Investor generally doesn’t like to pay for a forecast P/E ratio of over 40 when I’m buying a new growth stock – that means the projected earnings are 40 times the current price of the stock. This reduces the table to 7 stocks. I can reduce the table even further by taking out the 3 US based stocks (MSFT, NVDA, GOOGL) – which I can buy in one trade by purchasing more of the ASX listed NDQ . The Betashares NASDAQ 100 ETF was already on my BUY radar. Have a look at the 1-yr returns on these amazing growth companies in the table below of top NDQ holdings – It is unlikely that this stellar growth will continue … but there is certainly momentum here.
BetaShares NASDAQ 100 ETF (NDQ) top ten holdings – Morningstar
The Final List – this is not advice!
Company
Ticker
ROIC 23
CAGR 3-yr
P/E 2026
Price
Telix Pharmaceuticals
TLX
35
380
35
$15.05
Technology One
TNE
30
13
33
$16.25
Supply Network
SNL
24
23
21
$20.05
REA Group Ltd
REA
20
16
36
$179.64
Betashares NASDAQ 100
NDQ
–
18
27 (2024)
$41.35
As well as BetaShares NASDAQ 100 ETF (NDQ), I will be looking forward to topping up my supplies of Technology One, Supply Network and REA Group and hoping for a bit of a price contraction over the next couple of months. The share price shown in this table is at the end of April 2024.
A newcomer to this list is Telix Pharmaceuticals (TLX) – a relatively new entry to the ASX that develops radiopharmaceuticals for cancer diagnosis and treatment. There is a lot of talk of this companies potential.
“It’s developing into a premier global radiopharmaceutical company … I see this as going on to become the next CSL in Australia.”
A CAGR of 380 is skewed by recent figures – but they definitely are a growth company – but there is risk here! Slack Investor will roll the dice and add a bit of this to his portfolio while it is still around the $15 mark – there is a bit of momentum with this stock – might have to get in soon! He likes that they already have a money-making product and they have a further product pipeline ready to roll out.
(Telix Pharmaceuticals) has demonstrated extraordinary progress by generating over $100 million in revenue in the March 2023 quarter, a remarkable leap from zero, less than twelve months ago.
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
A bit of the froth has settled down with the ASX 200 (-2.9%) and the S&P 500 (-4.2%). However, the FTSE 100 (+2.4%) is powering on at the moment. After a while in the doldrums, the FTSE 100 is now reaching record highs with the expectation of some interest rate cuts soon.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
Slack Investor is always on the lookout for growth companies … particularly when he is on the BUY! Since retirement, I haven’t had much chance to be on the Buy side of a transaction lately – as there isn’t that flow of fresh new money coming into the coffers from employment. Pre-retirement, any new money would flow into the cash reserves of my Super (SMSF -Self Managed Super Fund). When a sufficient amount of cash had built up, I would look around for some company shares to buy.
However, with the expected inflow of a bit of cash with the impending sale of Altium, I am starting to look around for suitable receivers of Slack Investor loot. Slack Investor is “Going Fishing”. The first thing I want in my pond is profitable companies – but I also want them to have a record of growth. In the second part of this fishing series, I will try to narrow things down to companies that I would actually like to buy.
Measures of Profitability
Slack Investor likes a company, that he invests in, to not only make a profit – but to use its shareholder funds in the best way to make a profit. There are many ways to look at profitability, but Slack Investor is pretty lazy in this regard and you won’t find him forensically gazing over profit and loss statements from a company report. I prefer couple of simple ratios to get an overview – I am no expert accountant.
Return on Equity (ROE)
ROE = Net Income/Shareholder Equity
I have always used Return on Equity (ROE) as a simple measure to give an idea on how a company is growing. Strictly speaking, the ROE is more a measure of profitability and how well it grows each dollar of company funds.
The higher the ROE, the more efficient a company’s management is at generating income and growth from its equity financing.
This metric is very easy to find in market aggregator sites such as Yahoo.com, Morningstar, or Investing.com. For a deep dive, I prefer Marketscreener.com – which has the advantage of showing Predicted ROE for the next few years on each companies financial page. One of the problems with ROE is that, companies with debt can present an inflated ROE.
Return on Invested Capital (ROIC)
ROIC = Net Profit (After Tax)/Average Invested Capital
The purest way of looking at how good a company is in converting shareholders money into profit is the ROIC. Unfortunately, this figure is harder to come by on the generic financial aggregator sites. This ratio is superior to the ROE as it accounts for the debt levels of a company – as the Average Invested Capital is the Average Equity – Average Debt.
Measure of Growth
Compound annual growth rate (CAGR)
A quick way of determining if a company is growing is the CAGR. It is often constructed from past , data. The “Compound Annual Growth Rate”—is the annualized rate of growth in the value of the Earnings, or Revenue, over a stated period. The maths is a bit complicated and best done on a spreadsheet or a search around the financial sites. I found limited CAGR data for stocks at Morningstar and finbox.com
CAGR is defined as the annualized growth rate in the value of a financial metric – such as revenue and EBITDA – or an investment across a specified period.
Fortunately there are some really nice blokes in the financial world that share the burden of responsibility to educate people about the share market as well as operating a profitable business. A shout out to Owen Raszkiewicz of the RASK Group. A great place to start your financial education with Owen is his Australian Finance podcast that he co-hosts with Kate Campbell. Slack Investor will often tune in to their discussions.
Below is a table Owen prepared in August 2023 that ranks Australian stocks in terms of their profitability (ROIC – Return on Invested Capital – Column F). He also shows, in the last column, the stock’s historical growth rate for the 5 years 2017-2022.
From Rask Media – ASX’s best companies published August 2023 – ranked in order of ROIC- Click on image to enlarge
This is a great place to start fishing, metrics for profitability and growth in one place. Pro Medicus is standing out here – High profitability (ROIC 55.48%) and high historical growth (5-yr CAGR 24.22%). A complete picture needs both of these metrics. For example, Woolworths has a high profitability (ROIC 41.28%) but is laggard in historical growth (5-yr CAGR 2.10%).
The next article in this series will look at how Slack Investor narrows these stocks down and then screens them further with the P/E Ratio to try to make sure that each potential buying stock is not overpriced.
Renesas CEO Hidetoshi Shibata (left) and Altium CEO Aram Mirkazemi (right) firming up the takeover deal – From Business News Australia.
It is with very mixed feelings that Slack investor reports on the likely takeover of Altium (ALU) – one of his major holdings (16.6% of total Portfolio) – by the Japanese Renesas Electronics Corporation.
Renesas will acquire all outstanding shares of Altium for a cash price of A$68.50 per share, representing a total equity value of approximately A$9.1 billion
Although this represents a tidy profit, as I first bought into Altium about 10 years ago when they were trading at $3.30, I will be genuinely sad to stop being a shareholder of this wonderful company. I envisaged holding Altium shares for a very, very, long time!
Slack Investor’s 10-yr journey as an Altium shareholder – Monthly price chart from incrediblecharts.com – click chart for better resolution
Why I originally bought into Altium?
Let’s get this straight, Slack Investor is no stock picking genius. My portion of profitable sold shares is only about 55%. That is, I have made losses on 45% of them – it is not that impressive! – but my overall performance results are good. This is because I follow the Peter Lynch philosophy – where you try to stay in the stocks that are performing well and “weed out” the stocks that are not doing well.
“Some stocks go up 20-30 percent – and they get rid of it and hold onto the dogs. And it’s sort of like watering the weeds and cutting out the flowers. You want to let the winners run.”
Peter Lynch – Legendary Investor and Fund Manager. From 1977 until 1990, he ran the Magellan fund where he averaged a 29.2% annual return for those years.
Slack Investor is always on the lookout for growth companies … and Altium poked up its head and looked at me in 2014 from one of the financial sites that I read. The next step is a bit of independent research. My “go to” here is the most excellent Market Screener site. I went through my usual process for buying and checked the Market Screener/Financials tab for a reasonable projected Price/Earnings ratio, an established record of improvement in earnings, and a forecast Return on Equity (ROE) above 15%. Altium stood out here with no debt and a ROE of between 35 and 50. This company was growing!
After my initial purchase, I bought more parcels of ALU over the next two years as the shares continued to grow and their outlook projections were confirmed.
The Altium Story
Altium is an Australian-based software company that provides electronics design software to circuit-board engineers. These circuit boards are in every bit of technology that we own.
By the time Slack Investor had woken up to the Altium story, Aram Mirkazemi was the established CEO of Altium Limited. He came to Australia from Iran as a refugee in the 1980’s after a 6-month stint in a refugee camp in Pakistan. He did not speak English. After gaining qualifications in IT and engineering, he met Nick Martin, the founder of Altium, at a soccer game and Nick offered him a job. After an eventual falling out, Aram left to start his own software company. When Nick steeped down as CEO, Aram returned to Altium with a vision to make Altium a world player in printed circuit board design.
… in order to be able to change the way the electronics industry works you need to be able to standardise on one platform, like the graphics industry did with Photoshop or Microsoft’s dominance of the operating system and productivity tools market.
After several years of growth and gaining market share. The Altium board rejected an offer of $38.50 per share from Autodesk Inc back in June 2021 as they thought that the offer ‘significantly undervalues’ the companies prospects. The 2024 Renesas offer is yet to be approved by shareholders, but it seems that all the significant players are already “on board”. The offer A$68.50 per share in cash. represents a premium of approximately 34% to the pre-offer price.
All I can say is, it has been an honour to be part-owner (shareholder) of this great company – Thank you Aram and his team. I will be selling part of my holding this tax year (to spread the capital gain over two tax years) and wait for the cash offer to come through in 2025 for the remainder.
March 2024 – End of Month Update
More Happy Days in the stock market. As the troubled world marches on, all Slack Investor followed markets rose this month. The ASX 200 up 2.6%, the FTSE 100 up 4.2%, and the S&P 500 up 3.1%,
Slack Investor remains IN for the FTSE 100, the ASX 200, and the US Index S&P 500.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.
