Although the Australian share market is trading at an 11-month high, not all shares are performing as positively.
Two ASX shares which are still trading materially lower than their 52-week highs are listed below. Are these beaten down shares too cheap to ignore?
Appen Ltd (ASX: APX)
The Appen share price has been well and truly out of form in recent months and is now trading almost 50% lower than its 52-week high. This has been driven largely by a recent update which revealed that demand for its artificial intelligence (AI) data services from major tech giants has softened due to COVID-19. In addition to this, the appreciation of the Australian dollar has also weighed on the company. It generates the vast majority of its revenue in the United States.
While this is undoubtedly disappointing, management is confident that demand will rebound strongly once these headwinds ease and tech giants start investing back in AI projects again.
One broker that feels the weakness in the Appen share price is a buying opportunity is Macquarie. Based on its estimates, Appen’s shares are changing hands for 31x FY 2021 earnings. While this may not be conventionally cheap, it appears to believe it is great value given its strong long term growth potential thanks to the expected increase in AI spending in the future.
Macquarie has an outperform rating and $27.00 price target on the company’s shares.
Telstra Corporation Ltd (ASX: TLS)
Another ASX share that could be cheap is this telco giant. The Telstra share price is currently trading 18% lower than its 52-week high. This share price weakness has been caused by COVID-19 headwinds and concerns over the sustainability of its dividend.
In respect to the latter, some investors are not convinced that Telstra will be able to maintain its 16 cents per share dividend. However, it is worth noting that the Telstra board has revealed that it will do whatever it can to maintain this dividend.
In addition to this, Telstra has plans to split its business into three separate entities. Management believes the restructure will allow Telstra to take advantage of potential monetisation opportunities for its infrastructure assets. This could unlock additional value for shareholders.
These plans have gone down particularly well with Macquarie. It believes its shares are undervalued after looking through its assets and estimating what it could receive for them. The broker also believes Telstra can continue to pay a 16 cents per share dividend for the foreseeable future.
In light of this, Macquarie has put an outperform rating and $4.00 price target on its shares.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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