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Are cheap value ASX shares about to create the best returns?

‘Value’ ASX shares that are cheap could soon be the best ones to own.

There has been an increasing amount of discussion about whether ‘growth’ or ‘value’ is the best way to go for share investing.

I’m not sure there is such a thing as ‘value’ investing. Surely we are all trying to buying shares for cheaper than what we think they are, no matter if they have a current price/earnings ratio of 10 or 40?

It is true to say that shares with high(er) p/e ratios have been the strongest performers on the ASX over the past year or two such as Altium Limited (ASX: ALU) and WiseTech Global Ltd (ASX: WTC).

Investment returns are decided by: the dividends paid, earnings growth and the price the market is willing to pay for those earnings. The market has decided to pay a much higher price for those earnings of businesses that display good earnings growth.

However, with rising interest rates and high valuations of ‘growth’ businesses, it may be time for businesses with low valuations to outperform. Indeed, those same high-flyers are now registering some of the biggest losses over the past few months.

It can be fairly hard to find shares that are trading at low valuations and are still growing. Sometimes those low p/e shares can actually be a trap. The price may have fallen first, but the earnings may then be reported lower, bringing the p/e back up a reasonable level.

Foolish takeaway

Two of the low valuation shares that I feel could be good medium-term buys at the current prices are: regional livestock & pet veterinary business Apiam Animal Health Ltd (ASX: AHX) which is trading at 9x FY19’s estimated earnings and healthcare product distribution business Paragon Care Ltd (ASX: PGC) which is trading at 10.5x FY19’s estimated earnings.

5 stocks under $5

We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.

And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!

*Extreme Opportunities returns as of June 5th 2020

Motley Fool contributor Tristan Harrison owns shares of Altium, Apiam Animal Health Ltd, and Paragon Care Limited. The Motley Fool Australia owns shares of Altium and WiseTech Global. The Motley Fool Australia has recommended Paragon Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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