This weekend could be a good time to consider whether there are ASX shares that are good value and capable of producing long-term profit growth.
Plenty of businesses are volatile, which means that they could be attractive options if the market is underestimating their prospects.
But these two investments could potentially be compelling ideas:
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Reject Shop Ltd (ASX: TRS)
Reject Shop is one of the largest discount retailers in Australia. It's currently rated as a buy by the broker Morgan Stanley, with a price target of $10. That suggests the broker thinks that the Reject Shop share price could rise by around 40% in the 12 months after the rating.
The broker thinks that, whilst COVID-19 lockdowns have been a drag on performance, Reject Shop can increase its performance over the rest of FY22 and into FY23.
Morgan Stanley also referenced the company's FY21 result which showed improvement in several areas.
The ASX share managed to materially increase its profit margins during FY21. Whilst sales declined by 5.1% to $778.7 million due to COVID-19, underlying earnings before interest and tax (EBIT) grew by 110% to $9.4 million, whilst underlying net profit rose 134% to $6.4 million.
A significant part of the result came from the 84 basis points improvement to the cost of doing business (CODB) margin, despite the reduction in sales. The savings of $22.5 million comprised $13.7 million in store expenses and $8.8 million saving in administration expenses.
Store labour reduced to 13.9% of sales, down from 14.5% in the prior corresponding period, driven by simplification and standardisation of in-store processes.
In FY22, the business aims to grow comparable store sales, open new stores and continue to optimise the business. Higher costs due to the global supply are expected to impact the gross profit margin. In the first two months of FY22, it opened a new store in Bendigo and closed another. It's expecting to open another 20 stores in FY22, whilst closing five unprofitable or underperforming stores.
According to Morgan Stanley, the Reject Shop share price is valued at 16x FY23's estimated earnings.
iShares S&P 500 ETF (ASX: IVV)
This exchange-traded fund (ETF) tracks the S&P 500, which is a long-time favourite of legendary investor Warren Buffett because of the (typically) low costs and the underlying diversification.
When it comes to costs, this ASX share is one of the cheapest ETFs on the ASX, with an annual management fee of just 0.04%. That means that investors lose almost none of the returns each year to fees, which should mean a bigger portfolio in the future than if the fees had been higher.
There are several ways that this ETF can help with diversification. It is meant to have 500 positions, so that's quite a lot of businesses.
In terms of the different sector exposures, there are five industries with a weighting of more than 10%, which could suggest a fair balance between the different sectors: information technology (27.9%), health care (12.97%), consumer discretionary (12.97%), financials (11.31%) and communication (10.7%).
In the portfolio are many of the world's biggest businesses including: Microsoft, Apple, Amazon, Tesla, Alphabet, Meta Platforms/Facebook, Nvidia, Berkshire Hathaway and JPMorgan Chase.
Past performance is not an indicator of future results. But, over the last three years, the ETF has produced an average return per annum of 18.7%.
