6 Stocks at all-time highs – Where to next?

The ASX 200 Index has had a stellar 18-week bull run, rebounding from the COVID-19 crash by roughly 32% from a low of 4546 points (March 23) to today’s close at 6020 points. Despite still being roughly 16% from pre COVID-19 highs i.e. 7197 points, there are a few stocks that are hitting all-time highs. With reporting season around the corner, we know what happens to high PE stocks that disappoint. In the same way, stocks that beat expectations continue to run. In this piece, we list 6 stocks hitting all-time highs and provide a short analysis.

Ansell (ASX:ANN) – The manufacturer of gloves, face masks, body suits and all things COVID-19, has enjoyed a stellar run having been one of the lucky stocks that stood to benefit from a global pandemic. The company even confirmed guidance, a rare occurrence this profit season as most companies look to be downgrading or removing guidance altogether. Sales of its AlphaTec hand and body products skyrocketed as consumer demand for high quality sanitiser’s rose. Whilst some of its products will experience a drop in demand, its largely been a net positive for the company. Going by analysts’ projections, this virus may have a good 6-12 months to play out. At worst, demand may taper off, but should not drop anytime soon. With $515m in cash, no major debt maturities next year and an ongoing buyback program, Morningstar views it as a trul defensive play.

Temple and Webster (ASX:TPW) – Another beneficiary of Covid-19 is the e-commerce boom. This has been driven by quarantined consumers and their JobSeeker payments splashing cash on electronics and homewares. The company is a leading online retailer of premium furniture and homewares products which operates on a lower cost and faster delivery drop-shipping model. Products are delivered from supplier to customer direct. Debt free and $69 million in the bank having just raised capital, TPW’s balance sheet is looking fabulous. The company is profitable with EBITDA up 668% to $7.1 million for the 11 months ending May 31 and it expects FY EBITDA to exceed $8 million. It should do this quite easily as Victoria is back in lockdown. TPW is cashed up and looking to grow after being considered one of the worst floats of 2016.

Kogan (ASX:KGN) – From its humble beginnings as a small time ‘out of a garage’ retailer, to being worth as much as Myer and David Jones combined, Ruslan Kogan has built an online e-commerce empire worth $1.7 billion. With a similar drop-shipping model to Temple & Webster, Kogan sees itself as the Amazon of Australia attacking JB Hi-Fi on price and on everything else. Similar to TPW, the company has enjoyed a healthy price run on the back of the COVID-19 e-commerce boom, but will it continue? After purchasing a freezer two months ago, that is still yet to arrive, I am convinced KGN cannot meet the recent surge in demand. It needs to address a potential inventory issue, otherwise it risks losing impatient customers, such as myself. Maybe that’s why the CEO has been selling shares. With +$160 million in cash, the company has the firepower to not only increase its inventory but also conduct some smart acquisitions. With 4Q sales up 95%, profit up 115% versus last year and active customers on the rise, KGN should be able to surprise on the upside at its August 18 FY profit result. KGN is hard to beat on price which it achieves by having economies of scale. Its earnings are growing rapidly and it is cashed up to the eye balls. A few cracks may be appearing in the wood-work, but nothing to worry too much about.

Coles Group (ASX:COL) – Another COVID-19 retailer enjoying the sunlight generated by toilet-paper hungry consumers who have stripped shelves bare causing headaches for staff and management. It does, however, have a short trading history. Stock shortages caused by panic buyers isn’t all bad news. The unprecedented demand on stores and fulfilment centres indicates high sales growth numbers. With Victoria entering lockdown 2.0, sales numbers rose by approximately 20% in the past two weeks, compared with the previous fortnight. These are good numbers even though they don’t compare to the 300% rise in stores during March where it sold through seven days’ worth of toilet paper in a day. Question is; has the increase in sales equated to an increase in profit?  Not quite. Management at Coles say extra staff were required to restack depleted shelves, provide extra security, restock distribution centres and fulfil online orders. For that reason, Coles was unable to capitalise on this opportunity and an increase in sales was partially offset by an increase in staff costs. Nonetheless, the good thing about consumer staples are their defensive qualities. Irrespective of the state of the economy, there will always be demand for Coles’ products because people rely on staples every day. Consumer staples generate solid profits but they may not have the highest earnings growth. Instead expect modest growth with reliable profits.

Afterpay (ASX:APT) – We all know or have heard about market darling Afterpay and its mammoth bull run driven by the disruptive Buy Now Pay Later (BNPL) payment platform. In just 3 years, it has gone from nothing to $19bn, the same size as Bendigo & Adelaide Bank (BEN). The COVID-19 lockdown accelerated online purchases. With cash no longer king, BNPL sprang into action as Australians withdrew less cash and started paying by digital means to prevent further spread of the virus. This spawned a new era of BNPL platforms, all vying for a piece of the pie. With first mover advantage, Afterpay has well and truly secured pole position making good progress on its expansion strategy into the US and UK. Both massive markets. The opportunities here are endless. We do love the stock and have been following the Afterpay story since the day it listed. It has been the momentum trade of the year rising some +800% in just a few months. Unfortunately, its meteoric rise, driven by global investors, may be too much too soon to warrant buying.

Netwealth (ASX:NWL) – While market focus is on all things Buy Now Pay Later, a similar sector that hasn’t quite attracted as much attention is the wealth management platform sector. Considered the original ‘fintech’s, stocks such as Netwealth (ASX: NWL), Hub24 (ASX:HUB) and Praemium (ASX:PPS) were around long before Afterpay. They compete with and are dominated by the big bank platforms, but their new generation technology is fast disrupting the landscape. In a sector that mostly cares only about one number, i.e. the Funds Under Administration (FUA), Netwealth is the leader (ex-banks). During the COVID-19 lockdown, the platform recorded a June quarter increase in FUA of $3.6bn (13% increase) to give a total FUA of $31.5bn. Despite its record inflows, on valuation metrics NWL is expensive. NWL has FUA of $31bn (market capitalisation $2.9bn). If you compare AMP’s North, it has about $148bn in FUA (almost 5x the size of NWL) with a market capitalisation of $5.8bn. On that basis, NWL should be valued at around $800m, so it may seem overvalued at $3bn. Looking cheap is Praemium, which announced the $55.6 million takeover of Powerwrap. The merged entity will have FUA of $27bn (almost the same size of Netwealth) and a market capitalisation of $234m.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.