The falling share market has provided investors with some of the best value investments for a generation. Market inefficiency has underpriced some of the best blue-chip shares on the ASX. In some cases, dropping their share prices to lower levels than what we’ve seen for years.
The old cliche is true; markets come down on an escalator and go up via the steps. However, with interest rates even lower, I believe there is every chance of an explosive recovery if COVID-19 turns out to be more manageable than expected.
All of the ASX shares listed below have sustained their ‘Buy’ recommendations from major brokerage houses.
The bluest of blue
Woodside Petroleum Limited (ASX: WPL) is an iconic Australian company. With 65 years of experience, it was at the vanguard of the creation of an entirely new industry.
The Woodside Petroleum share price is currently lower than it has been since September of 2016, falling 16% last week and a further 2% so far in the current week.
In FY19, the company reported a reduction in net profit after tax (NPAT) of 74.8%. Last month, it also announced the reduction of its ownership of the Scarborough project with BHP Group Ltd (ASX: BHP) by 1.5%.
However, the company’s gross margins are at 44%, its break-even costs have reduced by 27%, and its growth projects are global. In my view, Woodside is clearly undervalued and an expert at managing the realities of the LNG market.
Underpriced large-cap engineering company
The Worley Ltd (ASX: WOR) share price dropped by 11% last week and a further 2.2% this week. Aside from a short dip in December 2018, Worley shares have not been this low since August of 2017. Worley’s current price to earnings (P/E) ratio of 16.6 is historically one of its lowest.
The blue-chip share’s 1H20 earnings delivered an increase in underlying net profits after tax and amortisation (NPATA) of 110%, an increase in free cash from $21 million to $277 million, and a backlog of work worth $18.7 billion.
Yesterday, Worley announced a large contract win for a subsidiary of BP Plc. Meanwhile, on Tuesday, the company announced an increase in holdings by one of its directors through an on-market trade.
Worley is tragically underpriced, in my opinion, and is a rare opportunity for value investors.
Solid performing utility and rare low price
Ausnet Services Ltd (ASX: AST) is Australia’s largest transmission network and has total assets of greater than $13 billion. This blue-chip ASX share is trading at a P/E ratio of 24.05. This earnings multiple is historically low and below the average of large-cap and mid-cap companies in the sector.
The Australian Energy Regulator (AER) noted AusNet is consistently leading in productivity on its benchmarking reports and the company has a return on capital employed (ROCE) of above 7% for the past 3 years. This indicates a very economical use of capital.
In my view, the inefficiency of the market and the madness of crowds has thrown up some of the greatest opportunities in blue-chip shares since the Dot Com crash. Not one thing has changed for these companies. They all remain well-managed, strong performers.
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 Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.