2 ASX shares that humbled successful fundies

Max Cappetta says he feels sheepish that his Xero stocks shot up 100% and it still underperformed compared to this same-sector company.

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Humble fund manager of ASX shares with head in hands in front of lap top computer

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Share investors love to talk about their successes. It doesn't matter if they're professional or retail investors — the stories you'll hear at the barbecue are about those ASX shares that shot up to 5, 10 times their purchase price.

But every portfolio has duds and missed opportunities. No investor has a 100% strike rate.

So it's refreshing to hear from professional investors which moves they regret.

Redpoint chief executive and head portfolio manager Max Cappetta wished he'd purchased Afterpay Ltd (ASX: APT) shares when they were cheap.

"I must admit it's a little bit humbling when the stock that you choose in a sector, like Xero Limited (ASX: XRO), goes up 100% and it's the under-performer in the sector by a factor of 10!"

Cappetta's memories of the dot-com bubble possibly made him a bit shy about the buy now, pay later share.

"Having lived through and managed an Australian small caps product through 1999 and 2000, I've seen how the market can re-price some of these names," he told The Motley Fool's Ask A Fund Manager this week.

"We were a little bit slow, particularly in this portfolio, to get a position. We currently do [hold Afterpay], but we are underweight – it's more there for risk purposes."

The Afterpay share price was around $38 one year ago. Then during the COVID-19 market crash in March, it fell to as low as $8.01.

It is trading at $145.51 as of Wednesday afternoon.

Afterpay was a value share in March

"I do look at Afterpay and say, 'In many ways at $10 in mid-March it was a value stock'. It's so easy to say now in hindsight," said Cappetta.

"That's probably the one stock that, if we had our timing in, we might have had a little bit more invested in it in April and May of last year."

It's not like Redpoint didn't assess Afterpay's numbers. It just never met the quantitative criteria that Cappetta's team lives by.

"Its cash flow generation and lack of profitability is a red X for us. It's hard to obviously get a value on the stock, but even across our metrics it doesn't look like a valuation opportunity," he said.

"Growth does seem to be turning more positive of late. That's why we've taken a position over the last 6 months in the stock. Momentum has been quite strong… And the stock has responded very well or the market has responded to news and announcements from the company."

The higher the Afterpay share price goes, the more polarising the opinions get about where it will end up.

"You know, some believing that the stock is headed to $200, others believing that it's probably more fair value at $30. No doubt, the truth is somewhere in between," Cappetta said.

"Exactly which side is going to win out, we'll just have to wait and see."

Getting rare earths at the ground level

Similarly, SG Hiscock portfolio manager Hamish Tadgell told The Motley Fool last month that he regrets not getting in on Lynas Rare Earths Ltd (ASX: LYC).

The Lynas share price has shot up 34% since mid-December and more than 100% since the start of October.

"It would have been nice to have get in at the ground level," Tadgell said.

"I guess the question is whether you've missed it or whether it's going to continue to go [up]. That's I guess something we're evaluating."

Lynas is the only producer of rare earths minerals outside of China.

And that is becoming more of a political consideration for western companies that need the minerals to make electronic and electric devices.

"It's just recently won a contract with the US Department of Defense to help build a heavy rare earths plant in the US," said Tadgell.

"[There are] concerns that given China holds 90% of the world's rare earths, or supplies 90% of the world's rare earths, and 80% of the rare earths into places like the US – how do you find alternative supply?"

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Tony Yoo owns shares of AFTERPAY T FPO, Lynas Limited, and Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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