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

Why sell-off Zip for Pro Medicus?

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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.

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