Leading investor Jun Bei Liu from Tribeca Investment Partners has pointed to one S&P/ASX 200 Index (ASX: XJO) share that seems to be the cheapest it has been for five years. That ASX stock is Seek Limited (ASX: SEK).
Jun Bei Liu wrote a piece for the Australian Financial Review that noted the market is now facing somewhat different concerns compared to the start of 2022. At the beginning of the year, there was much commentary surrounding the strength of inflation and how fast the US Federal Reserve would have to increase interest rates to react.
But now there is the concern of 'stagflation'. What's stagflation? Jun Bei Liu described it:
Stagflation refers to an unusual period of high inflation with low, or in extreme circumstances, negative economic growth. Many investors have never experienced such an environment. The most recent stagflation experience was back in the 1970s, where inflation rose to as much as 12%, mostly caused by the oil price spike.
It could lead to 'real income' declining and a destruction of demand. Real income is the income after taking into account inflation changes. If income rose 3%, but inflation was 4%, that would be a decline in real income.
How bad could stagflation become?
Jun Bei Liu said that if the combination of rising inflation, falling real incomes, and weakening demand became entrenched, it could escalate into a negative spiral that is hard to reverse.
So is this on the cards for Australia and ASX 200 shares?
At this stage, that fate doesn't seem to be likely for Australia, according to the investment expert.
She pointed to several elements that could help the lucky country, including 5.5% GDP growth projected for Australia in 2022 and 2023. This would be stronger than the US and Europe. Australian households also have a reportedly high level of savings, providing a "nice buffer" for consumer spending.
Another benefit for Australia is that it exports a wide variety of commodities that are seeing high prices, such as energy, copper, and grain.
However, Jun Bei Liu expects inflation to pick up, with many ASX 200 companies talking of increasing prices. Tribeca is expecting Australia's interest rate increases to be slow and steady.
Seek named as an ASX 200 share opportunity
The Tribeca fund manager said that share markets have priced in a lot of the bearish sentiment.
Jun Bei Liu sees opportunities in quality companies that are predominately Australia-focused and are growing earnings in a "meaningful way".
However, some of those ASX (200) shares are being sold off heavily as investors head for the exits.
She named Seek as a pick. It's the dominant business in the employment classifieds space. It achieved a high level of profit growth in the recent FY22 half-year result. Continuing operations net profit after tax (NPAT) rose 147% to $124.2 million, excluding significant items.
She said Seek is expected to be on a double-digit growth trajectory over the next few years.
According to the investment expert, Seek is now trading on its cheapest multiple for the past five years. The Seek share price has risen 14% over the past month, but it's still down by almost 10% in 2022.
For FY22, excluding significant items and the Seek growth fund, NPAT is expected to be in the range of $230 million to $250 million, according to Seek.
