It’s only 2.5 months old, but 2022 has been action-packed. And not in a good way.
First, we saw the share market in freefall about inflation and interest rate rises. Then just as it partially recovered from that, the war in Ukraine broke out.
So while there are plenty of cheap ASX shares out there, experts caution careful selection when picking up bargains right now.
As such, the team at Firetrail provided some guidance to 2 ASX shares that they think will still do well in a turbulent year:
$300 million to come, by doing nothing
Firetrail portfolio manager Scott Olsson likes the look of QBE Insurance Group Ltd (ASX: QBE) during a time when interest rates are sure to rise.
But he did admit the insurance giant has disappointed shareholders in recent years.
“It is a stock that’s been very hard to own over the past 15 years,” he told a Firetrail webinar.
“But now is the time to own QBE.”
The simple fact is that QBE holds $3 billion of premiums before claims payouts. This means a one percentage point increase in interest rates would mean a $300 million uplift for the business.
Also, business insurance premiums have increased 30% over the past three years, according to Olsson.
“That can flow through into better profitability rolling forward.”
QBE shares are now at a 15% discount to its long-term trend, said Olsson.
“And that just screams very cheap to us, given earnings can grow by 20% into FY23 and 20% again into FY24.”
QBE shares are down more than 11% in the year to date, ending Friday at $10.55.
Inevitable growth for aged care sector
Even for a small companies analyst like Firetrail’s Eleanor Swanson, chaotic times has her retreating into more defensive investments.
And one ASX share that she has her eye on at the moment is aged care provider Estia Health Ltd (ASX: EHE).
“Estia Health is an undervalued defensive, with material tailwinds,” she said.
“What matters for Estia is that Australia has an ageing population.”
Swanson cited forecasts that the number of aged care beds will have to increase 2.5 times over the next 20 years.
While the sector faces uncertainty about regulation and funding, Swanson believes the government will be “highly incentivised” to improve business conditions to attract investment.
The Firetrail team also believes Estia will improve occupancy rates, which will directly benefit the bottom line, as much of its costs are fixed.
And compared to recent acquisitions in the aged care industry, Estia’s valuation is very low at around $100,000 per bed, implying future growth potential.
“Bolton Clarke‘s acquisition of Allity… The acquisition multiple implied a value per bed of $160,000,” said Swanson.
“Calvary recently acquired Japara… and paid $130,000 per bed.”
Estia shares have risen by more than 11% over the past month, closing Friday at $2.27.