2 ASX shares for the win in 2022

In a climate of rising interest rates, experts warn investors to be selective about the bargains picked up during this current dip.

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Key points

  • ASX shares are volatile this year due to the fear of rising interest rates
  • Some sectors, like consumer staples and telcos, might be better placed to handle a rise in rates
  • One expert has suggested 2 stocks in each of those sectors that are ripe for the picking

It is no secret that ASX shares have been volatile to start off 2022.

The fear is that interest rates will rise and that will put a dampener on future earnings of growth companies and the supply costs of even traditional businesses.

As such, experts are warning investors to be selective about the shares they buy during the current dip.

Investors Mutual Limited senior portfolio manager Simon Conn is currently finding “good value” in 2 particular ASX sectors — consumer staples and communications.

“Both have got fairly resilient demand,” he said in a Livewire video.

“They’re able to have some pricing power and, particularly, the telcos are not subject to big cost of goods sold increases. Stocks in that sector look attractively priced for our money.”

Conn named 2 ASX shares in those industries ripe for the picking at the moment:

Australians can’t live without their phones and internet

It’s been a miserable time for TPG Telecom Ltd (ASX: TPG) shareholders since the stock debuted 19 months ago after a merger between TPG and Vodafone.

The share price has tumbled 32% over that period.

But it has resisted the general S&P/ASX 200 Index (ASX: XJO) downturn this year, remaining flat.

“We really like TPG Telecom. It’s the number 3 player,” said Conn. 

“It’s a fully integrated telecommunications business that has been impacted by COVID, with the lack of roaming, as people haven’t been travelling and overseas arrivals haven’t been coming into the country.”

The company has some clear channels for earnings growth, he added.

“There’s the fixed wireless opportunity, which we think can grow their earnings going forward,” he said.

Telstra Corporation Ltd (ASX: TLS) just sold their towers business for 28 times EBITDA. TPG trades at 8 times and they have a similar asset base, which they could then sell and stake in to crystallise some value and pay down debt and accelerate the increase in dividends.”

Conn noted that TPG shares are going for about 13 times cash-adjusted earnings per share and pay out a nice 2.46% dividend yield.

“It’s a business that just looks very, very cheap and under-owned for us.”

Say cheese

Dairy goods producer Bega Cheese Ltd (ASX: BGA) has seen its share price fall in line with the general market this year. 

The stock is 7% lower than where it started 2022.

Conn likes Bega as a consumer staples play and thought the Lion Dairy acquisition last year was a winner.

“That’s really enhanced the transition that business is making to a more branded consumer staples business,” he said. 

“That generates a much higher margin — really driving the business away from their more commodity-based routes.”

Bega shares are great value at the moment, he added.

“The business is trading at about 19 times and an EBITDA multiple of 8 times, which is a discount to international peers,” said Conn.

“Obviously, it’s been impacted by COVID in the last six months, but as those unwind, the business has some pricing power and we think it’s really well placed going forward.”

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended TPG Telecom Limited. 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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