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This year has been a fascinating and painful year for ASX growth stocks. Strong inflation and higher interest rates have punished the valuations of many assets.
But, as Warren Buffett’s famous advice goes, “be afraid when others are greedy, and greedy when others are afraid.”
Investors have certainly gotten scared this year. ASX growth stocks have taken a hit because long-term growth isn’t worth that much Today due to higher interest rates (due to discounted cash flow valuations).
Buffett once explained why interest rates are so important:
“The value of any business, the value of a farm, the value of an apartment complex, the value of any economic asset is 100% sensitive to interest rates because all you do in investing is now transfer some money to someone in return because what you expect the cash flow to be will come in over a period of time, and the higher the interest rates are, the less the cash value will be So by nature every company is… its intrinsic valuation 100% sensitive to interest rates.
I think the current environment has made the following two options for ASX growth stocks attractive:
Beta Shares Nasdaq 100 ETF (ASX:NDQ)
This is an exchange-traded fund (ETF) that gives exposure to 100 of the largest non-financial companies listed on the NASDAQ. It comes with an annual management fee of 0.48%.
Many of the top holding companies are probably recognizable to readers: Apple, Microsoft, Amazon.nl, Alphabet, Tesla, Nvidia, PepsiCo, Meta platformsand Costco.
While much of the portfolio is invested in technology-related companies, other sectors are also represented in the holdings, including utilities, industrials and consumer staples, and so on.
I think names like Apple and Microsoft have resilient earnings – smartphones and Microsoft Office software seem very embedded in everyday life.
I feel that higher interest rates have lowered the net asset value of many companies, but some stock prices have fallen significantly. It’s not often that we get the chance to buy, say, Microsoft shares 28% lower than where they were at the start of a year.
The price of the Betashares Nasdaq 100 ETF is down 26% in 2022, so I think this ASX growth stock is a good value for the long haul today.
Despite the decline, it has delivered an average annual return of 15.2% over the past three years through October 31, 2022.
Gentrack Group Ltd (ASX:GTK)
Gentrack’s share price is another one that has taken a dive this year – it’s down more than 25%.
Gentrack says it “designs, builds and delivers cloud-first revenue and customer experience solutions that are found at the heart of leading utilities and airports around the world.”
Momentum seems to be returning to the business. It has yet to report its FY22 result for the year to September 30, 2022, but in February 2022 and May 2022 it reported annual revenue of $115 million (up from FY21 revenue of $105.7 million) .
It had also said that earnings before interest, taxes, depreciation and amortization (EBITDA) for FY22 were expected to be in the “low single digits” in terms of how many millions of dollars it expects to earn.
But at the end of September, it said it expected to generate $125 million in revenue and EBITDA is expected to be in the mid to high single digit multimillion dollar range.
ASX’s growth share continues to win new customers and expand with existing customers.
It has also said it is “well positioned to capitalize on the significant market opportunities created by the transformation of utilities and airports around the world”.
I think opening up the borders can also have a useful effect on the airport software side as airports will have more revenue to spend.
Gentrack itself is increasing its investments in research and development, as well as in sales and marketing. This should help growth in the future.