ASX Buys: Fund Manager’s Top 2 Picks

Fund managers at Wilson Asset Management (WAM) are constantly on the hunt for promising opportunities on the Australian Securities Exchange (ASX). They’ve recently highlighted a couple of compelling prospects within the WAM Capital Ltd (ASX: WAM) portfolio that could be worth a closer look for investors. WAM Capital operates as a listed investment company (LIC) with a specific mandate: to identify and invest in “the most compelling undervalued growth opportunities in the Australian market.” This strategy typically means looking beyond the top 100 largest companies listed on the ASX for hidden gems. Let’s delve into two companies WAM believes are presenting attractive investment cases right now.

Codan Ltd (ASX: CDA)

WAM identifies Codan Ltd as a key player in the manufacturing and supply of essential technologies, spanning communications, metal detection, and mining solutions. The fund manager pointed to a significant trading update released by the company in January, which provided insights into its first-half performance for FY26.

This update revealed a robust total revenue of $394 million, alongside an underlying net profit after tax (NPAT) projected to exceed $70 million. These figures represent substantial year-over-year increases of 29% and 52%, respectively. Breaking down the revenue streams, the communications segment contributed approximately $222 million, marking a healthy 19% rise compared to the previous year. The remaining revenue, around $168 million, was generated from metal detection sales, with a particular emphasis on gold detector sales across the African continent.

According to WAM, the market’s positive reaction to the Codan share price was driven by the magnitude of the earnings upgrade and the impressive performance across both of the company’s core divisions. The fund manager expressed continued optimism regarding Codan’s future prospects, citing supportive tailwinds from both the defence sector and the prevailing gold price environment.

Life360 Inc (ASX: 360)

Life360 Inc is described by WAM as a company specialising in location-based tracking software and safety solutions. The fund manager noted that the Life360 share price has recently been impacted by a broader sell-off within the technology sector. This downturn appears to be largely driven by investor concerns about potential disruption from artificial intelligence (AI).

This negative sentiment has emerged despite Life360 delivering a “strong” preliminary trading update for FY25 in January. Key performance indicators that had been a source of market apprehension, such as monthly active users (MAU) and paying circles, both demonstrated robust growth, exceeding expectations.

WAM highlighted that this performance suggests a “robust runway” for continued penetration growth within Life360’s core US market. While the Life360 share price saw a significant jump of 27% on the day of the announcement, these gains were subsequently relinquished.

The fund manager characterised the current sentiment within the technology sector as “weak,” drawing parallels to past market anxieties. These include concerns surrounding Resmed (ASX: RMD) and the impact of GLP-1 drugs in 2023, or the market’s apprehension about online competition for JB Hi-Fi Ltd (ASX: JBH) back in 2017 and 2018.

While WAM acknowledges the difficulty in pinpointing a specific catalyst that will swiftly restore market confidence in the technology sector, their focus remains on identifying technology companies where they believe the perceived threats of AI disruption are being overstated. The fund manager anticipates that, over time, valuations and share prices for such companies are poised for a “rebound strongly.”

The WAM Capital portfolio, through its diligent analysis, seeks to unearth these undervalued growth opportunities, and Codan and Life360 are currently two prominent examples of companies that the fund managers believe warrant investor attention.