2 ASX shares this expert will pounce on this dip

A black cat waiting to pounce on a mouse.

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As stock markets around the world digest the aftermath of this week’s Federal Reserve and Bank of England meetings, many ASX stocks remain heavily discounted.

James Gerrish, portfolio manager at Shaw and Partners, told his Market Matters newsletter that the Australian market will rise towards Christmas.

“We don’t expect any major surprises from the Fed and/or the BOE, but we believe another recovery rally then will be a strong possibility.”

Therefore, buying up cheap stocks now could prove fruitful in the period ahead.

Here are two ASX stocks that are tempting Gerrish’s team right now:

‘Value has been restored’

The Market Matters team is looking for a supplier of building materials James Hardie Industries plc (ASX:JHX) to its flagship growth portfolio.

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The stock price is down nearly 43% year-to-date.

“James Hardie is heavily dependent on the US housing market, which like our own has understandably fallen out of favor as interest rates rise,” Gerrish said.

“But there is already a lot of bad news factored into this stock and this sector.”

James Hardie shares went into the Queen’s Remembrance Day at $32.54 a share.

The update, delivered during last month’s earnings season, showed “nothing too unusual,” according to Gerrish, and that 80% of the analyst community currently rate the stock as a buy.

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“We believe Deep Value is slowly approaching current weakness,” he said.

“While a further drop below $30 cannot be ruled out in today’s restrictive environment, we believe value has been restored and the stock is in a certain zone of accumulation.”

Income that increases with inflation + reliable dividend

In the income portfolio, Gerrish’s team favors infrastructure owners APA group (ASX:APA).

“The owner and operator of gas transmission and distribution assets in Australia offers two important things that we like in this uncertain environment,” said Gerrish.

“Predictable earnings that rise with inflation (90% of earnings are CPI-linked) and a reliable dividend that’s now back above 5% given the share price weakness.”

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In fact, APA stock is down 15.9% since Aug. 8.

The Market Matters team has held the stock historically and will buy back if the price dips below $10.

APA shares entered the public holiday on Thursday at $10.24 a share.

Gerrish rates APA stocks relative to bond yields.

“APA generally trades at a 2.8% premium to 10-year bond yields,” he said.

“While it’s currently just 1.63% above 10-year returns, under $10 and applying a more typical payout, we’re getting closer to that number.”

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