Why we just sold Zip and bought Pro Medicus (ASX:PME) shares: fundie

Why sell-off Zip for Pro Medicus?

| More on:
A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Pro Medicus share price has slipped more than 4% at the time of writing while Zip is down almost 3%
  • An investment head at Abrdn has revealed the reason for a pivot from Zip to Pro Medicus 
  • Pro Medicus reported a nearly 53% surge in its net profit after tax in its half-yearly results 

A high-level funds manager has divulged her fund's strategy of offloading Zip Co Ltd (ASX: Z1P) shares and buying Pro Medicus Ltd (ASX: PME) instead.

The Pro Medicus share price is down 4.48% at the time of writing at $44.10, after falling as low as $43.59 earlier today. Meanwhile, Zip shares are around 2.62% lower.

By comparison, the S&P/ASX 200 Index (ASX: XJO) is down around 1% so far today.

Let's take a look at what the Australian head of one global investment firm had to say.

Why Pro Medicus instead of Zip?

Amid interest rate speculation, the Russian invasion of Ukraine, and the east coast floods, one investment head has outlined reasons for a shift towards a growth share like Pro Medicus over buy now, pay later (BNPL) share Zip.

Speaking to LiveWire, Abrdn Australian equities head Michelle Lopez explained her fund's major portfolio shift with its move to a growth share like Pro Medicus.

So we pivoted out of a company, for example, Zip, that had a very long runway to turn profitable. And we recycled that capital into a higher quality growth name, such as a Pro Medicus, that again, got hit very hard. 

But, A, it's profitable, B, it's got incredibly strong margins. It's an industry leader. It's got cash on the balance sheet. And again, we felt the valuation had come off a long way. So it was just being a lot more discriminate in quality growth versus lower quality growth.

In its half-yearly results, Pro Medicus reported net profit surged by 52.7% and revenue increased by 40%. The company's shares gained 3.6% on 16 February, the day these figures were released.

Lopez also shared her insight into the latest reporting season, describing it as "turbulent". She added:

We've had rising inflation, we've got interest rates and expectations of hikes coming through, and we've got geopolitical tensions escalating. I felt it was a case of "shoot first and ask questions later" this reporting season.

Particularly for companies that had either very high valuations or operating leverage that was expected to come through that didn't, they're the ones that really got hit quite hard.

The Pro Medicus share price has sunk 26% in the past six months while the Zip share price has tanked 76% over the same time frame.

Share price recap

The Pro Medicus share price has held steady during the past 12 months, gaining a modest 0.75%, while Zip shares have shed around 83%.

For comparison, the benchmark ASX 200 index has returned about 5% over the past year.

Year to date, Pro Medicus shares have dived nearly 30%, while Zip shares have slumped around 62%.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Pro Medicus Ltd. and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended Pro Medicus Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Healthcare Shares

A doctor appears shocked as he looks through binoculars on a blue background.
Healthcare Shares

Ozempic maker Novo Nordisk plunges 22%. What could this mean for Resmed shares?

Novo Nordisk just lost $100 billion in market value.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Healthcare Shares

Guess which ASX 200 stock is jumping 11% today

Let's see why investors are bidding this stock higher on Wednesday.

Read more »

stockmarket graphic in background with man looking at stockmarket on phone
Healthcare Shares

CSL shares are a buy – UBS

This expert is optimistic on what the business can achieve despite headwinds.

Read more »

a biomedical researcher sits at his desk with his hand on his chin, thinking and giving a small smile with a microscope next to him and an array of test tubes and beackers behind him on shelves in a well-lit bright office.
Healthcare Shares

Broker says this ASX 200 biotech stock is a top buy

Let's see what Bell Potter is saying about this biotech.

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

Why CSL shares are a buy today despite the looming Trump tariffs

A leading expert believes CSL shares are still trading for a bargain today. Here's why.

Read more »

A businesswoman pulls her glasses down in shock to look at the bad news on her computer.
Healthcare Shares

Why did the Telix share price just crash 16%?

Investors are sending the Telix share price plunging today. But why?

Read more »

Broker analysing the share price.
Healthcare Shares

Expert: 2 ASX healthcare stocks to avoid before reporting season

Not all healthcare stocks are created equal.

Read more »

A group of people in a corporate setting do a collective high five.
Healthcare Shares

Should I buy Pro Medicus or CSL shares ahead of earnings season?

The ASX healthcare sector may be currently undervalued.

Read more »