BHP is one of the biggest resource businesses in the world and Altium is one of the world’s leading electronic PCB design software businesses.
Why I’d happily sell BHP shares
BHP has been a stalwart Australian business for over a century. But, resource businesses are very cyclical. Over the past five years we currently have the BHP share price at a near 5-year high today, a low of around $15 at the start of 2016 and it was around $35 around five years ago.
I don’t generally like owning commodity businesses because they are price-takers, they have little control of what they can charge customers. I prefer owning businesses that can dictate what they can charge.
BHP shares seem to be trading close to its cyclical high, so it might be a good time to exit today.
Why I would buy Altium shares
Aside from producing an impressive result again in the recent FY19 half year result, I believe there are several reasons to consider Altium shares:
- Globally diversified earnings – Altium’s revenue is derived 48% from the Americas, 32% from Europe, 14% from Emerging Markets and 7% from Asia Pacific.
- High level of recurring revenue – Around 53% of revenue is subscription-based, with over 31,000 subscribers globally.
- Profit margin expansion – Altium is committed to trying to grow its profit margin each year.
- Debt free – In this current economic environment it’s particularly attractive that Altium is debt-free and that it expenses all R&D costs
- Committed to returning profit to shareholders – Altium aims to increase the dividend to shareholders each year
Altium certainly isn’t cheap, it has a high price/earnings ratio, so the share price could be volatile over the next 12 months, although it does look cheaper compared to some of its ASX tech peers like WiseTech Global Ltd (ASX: WTC).
However, I believe in the long term Altium opportunity because it is now reaching targets it set years ago. The company has recently set targets of 100,000 Altium Designer subscribers and US$500 million revenue by 2025, which be very impressive if the company reaches those goals.
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Disclosure: At the time of publishing Jaz owns shares of Altium, but that could change at any time.