Three Homegrown Growth Stocks to Help Diversify Your Australian Holdings

Home bias is a prevalent theme in many Australian portfolios as investors often fall back on a “stick to what you know” mentality when selecting individual stocks. This tilt towards blue-chip stocks such as the big four banks and major miners may leave much to be desired on the growth side of the equation. Hence, an S&P/ASX 200 ETF which excludes sectors such as financials, materials and energy can help diversify a portfolio and complement existing holdings.

Another advantage of excluding these kinds of companies is getting a higher concentration allocation of lesser-known companies – when compared to a broad-based Australian equities fund – from different areas of the market including healthcare, retail and technology. Australia boasts a number of under the radar success which can be accessed via strategically allocated ETFs, including Pro Medicus, Lovisa and Altium.

Pro Medicus (ASX Code: PME)

  • Market Cap: $6.7 billion
  • Index Weight: 0.439% (compared to 0.001402% in the S&P/ASX 200)

Pro Medicus is following the likes of CSL and Cochlear into becoming an Australian healthcare success story. It is a leading provider of a full range of medical imaging software and services to hospitals and imaging centres around the world – meaning Pro Medicus has one of the most comprehensive end-to-end offerings in healthcare imaging.1 The medtech’s success largely stems from its acquisition of Visage in 2009, which enabled vast improvements to its software capabilities and saw its market cap grow from approximately $115 million to $6.7 billion.2 This move changed the game for making and sharing radiological diagnoses as healthcare professionals could view X-ray or scan reports and image files from their mobile devices in a matter of seconds. Since then, Pro Medicus has secured numerous major contracts in Australia, North America and Europe, including top-tier US hospitals such as Yale, NYU Langone Health, Mayo Clinic, Partners Healthcare and Northwestern Memorial Hospital.3

In its 2022 annual report, Pro Medicus’s after tax profits and revenue jumped more than 44% and 37% respectively compared to the previous period.4 Looking ahead, the company expects adoption of its technologies to increase – particularly as the use of artificial intelligence in the industry accelerates. It is continuing to invest in its products and international expansion plan which is expected to bolster the company’s growth and balance sheet over the coming years.

Past performance is not an indication of future performance.

Lovisa (ASX Code: LOV)

  • Market Cap: $2.7 billion
  • Index Weight: 0.227% (compared to 0.000672% in the S&P/ASX 200)

Lovisa has come a long way since listing in 2014, with shares increasing more than 1000% as of April 2023. Lovisa is a fashion jewelry and accessory business with more than 620 brick-and-mortar and seven online stores across 25 countries.5 The retailer has a vertically integrated business model, which means it develops, designs, sources and merchandises all of its own branded products. Ultimately, this allows Lovisa to be nimble and at the forefront of trends in order to deliver their target market a broad range of fashionable, cost-effective products.

In the 2020 financial year Lovisa’s bottom line took a hit as stores in Australia, New Zealand and Malaysia temporarily shut their doors because of Covid-19 lockdowns. Since then the business has seen year on year revenue growth – increasing almost 60% in 2022 to more than $458 million. According to its most recent annual report, this growth is largely due to international expansion, control over business costs and supply chains as well as the ability to develop at least 100 new lines each week. Lovisa’s success to date has left it with a healthy balance sheet which it is using to continue its international expansion and better its digital platforms.

Past performance is not an indication of future performance.

Altium (ASX Code: ALU)

  • Market Cap: $5.1 billion
  • Index Weight: 0.697% (compared to 0.001631% in the S&P/ASX 200)

Altium stands to further benefit from a range of technological advancements from robots to electric vehicles. It provides engineering software for printed circuit board (PCB) design. 75% of the company’s total revenue is recurring from its 56 900 global subscribers. This model has allowed Altium to scale and according to its Q4 2022 report, the company is on track to meet its target of reaching 95% reoccurring revenue (ex-China and developing countries) by 2026.6 Altium Designer – a cornerstone offering from the brand – has more than 100 000 users across a range of industries from automotives to semiconductors. The development of Altium 365 which is a cloud-based, digital collaboration platform is expected to facilitate further growth as it enables connectivity across the entire PCB design and manufacturing process.

Moving past Covid-19 related disruptions, Altium stands to benefit from increased advancements in and adoption of key technologies such as robotics, artificial intelligence as well as electric and autonomous vehicles. Altium has subsequently reaffirmed its guidance for the 2023 financial year, with total revenue anticipated to rise between 15% to 20% to approximately US$255-265 million.7

Past performance is not an indication of future performance.

Related Funds

OZXX: For investors wishing to gain efficient diversification in the Australian market, the Global X Australia ex Financials and Resources ETF (OZXX) offers a solution. Gain diversification by investing in Australia’s top 100 companies, excluding those in the financial (including REITs), basic material and energy sectors.

Click the fund name above to view the fund’s current holdings. Holdings are subject to change. Current and future holdings are subject to risk.