Our High-Conviction Buys for July 2024

In this article, we will explore three stocks currently on our radar, poised to deliver stellar performance in the coming months. Each of these companies has shown promising indicators across various financial and technical metrics, making them compelling high-conviction ‘buys’ at the moment… Emerald Resources (ASX: EMR) - Up +30% year-to-date: Strong Operational Performance, Record Gold Production, and Robust Finances Emerald Resources stands out as one of our high-conviction buys due to its impressive operational performance and strong financial metrics. The company’s 100% owned Okvau Gold Mine in Cambodia achieved a record full-year production of 114,076 ounces of gold, underscoring its robust operational capabilities. In the June 2024 quarter alone, Emerald produced 28,245 ounces of gold, hitting the upper end of its production guidance. Moreover, the company reported gold sales of 28,606 ounces at an average price of US$2,345 per ounce, demonstrating its ability to generate substantial revenue. With cash and bullion on hand amounting to A$162.3 million (US$107.5 million) at the end of the quarter, Emerald is in a strong financial position to continue its growth trajectory. Furthermore, Emerald’s operational efficiency is reflected in its low All-In Sustaining Costs (AISC) of US$821 per ounce for the June 2024 quarter, maintaining competitive cost management while delivering high production volumes. The process plant's high availability rate of 95.1% and average head grade of 2.20 g/t, coupled with modifications to the plant oxygen circuit, are set to further enhance gold recovery rates and reduce operational costs. Overall, Emerald Resources’ consistent production, strong financial health, and operational excellence make it a compelling stock for exposure to gold. Year-to-date, EMR share prices have gained more than 30%, even outperforming spot gold by more than 15%. Nickel Industries Ltd (ASX: NIC) - Up +14% year-to-date: Diverse Nickel Assets, EV Market Focus, Solid EBITDA Growth, Strategic Acquisitions, and Shareholder-Friendly Buybacks. Nickel Industries emerges as a compelling investment opportunity in the current market environment, demonstrating solid performance and strategic initiatives. With a notable +14% increase year-to-date, NIC leverages its extensive portfolio of mining and downstream nickel processing assets in Indonesia, anchored by the world-class Hengjaya Mine and several RKEF projects. The company's strategic shift towards the electric vehicle (EV) supply chain is particularly promising, evidenced by its recent acquisition of a 10% stake in the Huayue Nickel Cobalt HPAL project, expanding its product offerings to include mixed hydroxide precipitate (MHP). Moreover, NIC's ongoing investment in the Excelsior Nickel Cobalt (ENC) project, set to produce 72,000 tonnes of nickel metal annually, underscores the business' commitment to sustainable operations and diversification, which bodes well for future revenue growth. Financially, NIC's June quarter update anticipates EBITDA from operations to range between US$75M to US$80M, reflecting a notable improvement from previous quarters despite challenges posed by higher-than-average rainfall impacting production. The company's proactive measures include a strategic increase in equity interest in the ENC project to 44%, aimed at accelerating the construction of critical cathode and sulphate plants. This move not only enhances production capabilities but also strengthens NIC's position in the rapidly evolving nickel market, driven by growing demand from EV battery manufacturers. In addition to operational enhancements, NIC's capital management strategy includes an on-market share buyback program, recently approved by the Foreign Investment Review Board (FIRB) for United Tractors to increase its equity stake beyond 20%. This initiative demonstrates NIC’s strong confidence in its long-term prospects and shows that management is dedicated to maximizing shareholder value. With a clear focus on operational efficiency, sustainable growth, and strategic investments in high-demand sectors like EV batteries, Nickel Industries stands out as a strong buy, poised to capitalise on emerging opportunities in the global nickel market. Xero Limited (ASX: XRO) - Up +20% year-to-date: Strong Financials, Strategic Growth Initiatives, and Global Market Leadership in SaaS Accounting Software Last but certainly not least is Xero. Xero emerges as another compelling high-conviction buy for several key reasons. Firstly, the company’s recent successful issuance of US$925 million senior unsecured convertible notes underscores its strong financial position and strategic foresight. This capital raise, featuring a competitive interest rate and a convertible premium of up to 60%, provides Xero with ample resources for future growth initiatives, including potential acquisitions and strategic investments. Such proactive financial maneuvers not only bolster Xero’s liquidity but also mitigate potential dilution risks for existing shareholders, demonstrating management’s commitment to enhancing shareholder value. Secondly, Xero’s fiscal year 2024 results showcase robust performance metrics across the board. The company achieved a remarkable 22% increase in operating revenue, driven by substantial growth in Annualised Monthly Recurring Revenue (AMRR) and Average Revenue Per User (ARPU). Importantly, Xero maintained a disciplined approach to cost management, achieving a significant 75% rise in adjusted EBITDA and notable improvement in free cash flow margins. This impressive financial discipline, coupled with strategic product innovations like auto sales tax integration and expanded banking feeds, underscores Xero’s ability to capitalize on market opportunities and deliver sustainable growth. Lastly, Xero’s market penetration and international expansion efforts have yielded substantial results. The company reported robust revenue growth in key markets such as Australia, New Zealand, the UK, and North America, driven by strong subscriber additions and increasing ARPU. This diversified geographic footprint not only mitigates regional risks but also positions Xero as a global leader in cloud-based accounting software. With strategic partnerships enhancing its product ecosystem and solidifying market presence, Xero is well-positioned to capitalize on the growing demand for digital financial solutions, making it a compelling long-term investment opportunity. That said, Xero’s strong financial fundamentals, strategic initiatives, and expansive market reach make it a high-conviction buy for those seeking exposure to a dynamic and rapidly growing sector within the SaaS industry. The company’s proactive financial management, coupled with its innovative product offerings and global market expansion, highlight its potential for sustained growth going forward.