ASX shares to buy if there’s another crash

There are a few ASX shares that could be worth buying if there’s another crash. 1 idea is Australian Ethical Investment Limited (ASX:AEF).
The post ASX shares to buy if there’s another crash appeared first on Motley Fool Australia. –

market crash chart

I think there are a few ASX shares that would definitely be worth buying if there’s another crash.

The COVID-19 crash during March was a great opportunity to buy businesses at much cheaper prices. Just look at how much shares like Afterpay Ltd (ASX: APT), Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW) have risen since March.

There are some ASX shares that I’ve got my eye on in-case there’s another crash:

Australian Ethical Investment Limited (ASX: AEF)

Australian Ethical is one of the most promising listed fund managers in my opinion. It’s one of the few managers consistently growing funds under management (FUM). Magellan Financial Group Ltd (ASX: MFG) is a great manager, but its market cap is around 20 times bigger than Australian Ethical. I think the ethically-focused manager has more growth potential.

FY20 was a solid year with Australian Ethical’s funds under management (FUM) rising by 19% to $4.05 billion with net inflows of $660 million (doubling compared to FY19). Excluding performance fees, revenue and underlying profit after tax (UPAT) both rose by 15%. Reported net profit grew by 46% to $9.5 million.

What I find particularly attractive about the ASX share is that it is a superannuation provider. Superannuation FUM has a lot of growth potential due to the mandatory contributions and the tax advantages.

Fund managers are very scalable businesses. Once the foundations are set up, most of the new FUM just adds to profit. Occasionally Australian Ethical may need to add a few more employees, but more FUM should allow it to grow profit and occasionally cut fees which will help grow FUM even faster.

Australian Ethical’s balance sheet is in a strong position. It has no debt and it had $21.4 million of cash at the end of FY20.

I like that the company is steadily growing its dividend. In FY20 it grew its dividend by 20% to 6 cents per share, including a special performance fee dividend of 1 cent per share.

Altium Limited (ASX: ALU)

Altium is one of the highest-quality ASX shares in my opinion. It has long-term focused management with an aim of being the clear number one electronic PCB software business in the world.

The ASX share has already won over many of the world’s best businesses as clients like Space X, Apple, Microsoft, Google, Disney, Tesla, John Deere and so on.

Altium has a strong balance sheet with no debt. Its cash balance grew by 16% to US$93 million, which is the best way to keep the business strong during this difficult period.

I thought it was a good sign for future profit growth that Altium grew its subscription base by 17% to 51,006 in FY20 with a 15% increase in new Altium Designer seats sold to 9,251.

The ASX share is committed to regularly updating its software for users, which is an attractive proposition if it’s constantly improving. Subscribers are more likely to upgrade to Altium 365 – the cloud offering – if people think it’s the best and will keep getting better.

Altium expenses all of its research and development. This is good and means Altium’s valuation isn’t as crazy compared to other businesses which have high levels of depreciation and amortisation that spread out the expense over multiple years.

The ASX share is steadily growing its dividend for investors. Long-term investors are now getting a solid yield on their original cost. However, at the current Altium share price it only offers a starting dividend yield of 1.2%.

It’s currently trading at 52x FY22’s estimated earnings.

Foolish takeaway

I think both of these ASX shares are very high-quality and worth being in a portfolio. However, despite falling in recent weeks, both are still quite pricey. I’d be more happy to buy both Altium and Australian Ethical shares if they fell another 10%.

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Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd., ltd, and Temple & Webster Group Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Australian Ethical Investment Ltd., ltd, and Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post ASX shares to buy if there’s another crash appeared first on Motley Fool Australia.

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