It’s a confusing time for both professional and mum-and-dad investors at the moment.
Australians are struggling with mortgage repayments and cost-of-living pressures after rampant inflation and 12 interest rate rises have hit hard.
But on the other hand, employment rates remain strong and wages are heading up.
WAM Leaders Ltd (ASX: WLE) portfolio manager Matthew Haupt said in a memo to clients that his team is “taking a cautious approach”.
“We are seeking out names that have de-risked recently with a market update, have strong asset backings, valuation support or numerous levers they can pull to navigate the market cycle.”
His senior investment analyst Anna Milne named one such example from the S&P/ASX 200 Index (ASX: XJO) that they have bought recently:
The ‘fear is exaggerated’
Resmed CDI (ASX: RMD) is a sleep apnoea device maker that was founded in Australia but these days operates out of California.
The healthcare stock has fallen more than 8% since the start of May.
“ResMed’s share price has been impacted by the potential threat of GLP-1 weight loss medicines, such as Ozempic, reducing the weight of the patient population and therefore reducing the need for ResMedâs devices,” said Milne.
However, the WAM Leaders team is confident this trend isn’t as detrimental to ResMed as what the market thinks.
“We believe this fear is exaggeratedââââ, with analysis suggesting any GLP-1 products will be used in combination with ResMed devices, and to maintain weight loss patients must remain on GLP-1 therapy,” Milne said.
“GLP-1 products also have a range of side-effects causing high dropout rates.”
The dip has thus opened up a tempting buying window.
“As the sentiment around ResMed has been worse than the economic reality, this has provided an opportunity to increase our position at an attractive price.”
‘A compelling investment opportunity’
The next catalyst might be a regulatory update on ResMed’s main competitor Koninklijke Philips NV (AMS: PHIA), which has been out of action for a couple of years due to a forced product recall.
“We await news flow on competitor Philips’ consent decree, deciding to what extent they are allowed to re-enter the market following the recall of their devices in mid-2021.”
Weighing up these pros and cons, Milne has positive conviction about ResMed’s shares.
“We believe risk is skewed to the upside with current pricing assuming competitor re-entry and ResMedâs market share retreating to near pre-recall levels,” she said.
“Combined with a valuation in line with its 10-year average, despite a much more favourable market position and continued growth execution, we believe ResMed is a compelling investment opportunity.”
The team at Airlie Funds Management also revealed this week that it had bought ResMed shares.
“We anticipate double-digit earnings growth for ResMed for the medium term, strong cash flow generation with little capex, and a balance sheet with very little gearing.”
