The share market is sensitive and jittery this year, to say the least.
The prospect of inflation, interest rates and now the consequences of a war in Europe are understandably making investors nervous, and the action has been volatile.
Because of this environment, Ophir Funds co-founders Steven Ng and Andrew Mitchell said that many ASX-listed companies that reported decent financials in February still saw their stock price do a freefall.
"Any result in our industrials-centric portfolio that was not perfect — i.e. a large beat on actual earnings and raising of future earnings guidance — was dealt with harshly," they said in a letter to clients.
They provided two examples, and why they bought more of those ASX shares after the price fell.
Buy while others are worried about temporary problems
Telecommunications provider Uniti Group Ltd (ASX: UWL) and fashion retailer City Chic Collective Ltd (ASX: CCX) dropped a heart-breaking 21.3% and 20.4% over February.
In fact, they have plunged even further in March, taking their year-to-date losses to 32.2% and 43% respectively.
This is despite City Chic reporting at the top end of its guidance range and Uniti meeting expectations, according to Ng and Mitchell.
"Not results that would normally warrant such harsh share price treatment."
Investors punished the ASX shares for a couple of specific tailwinds — high inventory levels for City Chic and a new housing construction slowdown for Uniti.
But Ng and Mitchell believe the problems are transient.
"We don't believe [the issues] will prevent them from overdelivering on earnings in the next few years," they said.
"As such, we have continued to use the price weakness to add to the positions."
City Chic shares closed on Friday at $3.13 while Uniti was at $3.12.
Australian shares will be fine in 2022
According to Ng and Mitchell, the market currently expects the S&P/ASX 200 Index (ASX: XJO) to enjoy about 12% earnings growth for the 2022 financial year.
"This is still above average and suggests that the Aussie share market can still generate reasonable returns this year — providing it's not derailed by an escalation in the war or by central banks taking away the punchbowl too quickly."
