2 ASX shares that were dogs last month but good to buy now: expert

The team at Celeste Funds Management is keeping the faith in this pair of stocks despite their horrible underperformance in March.

| More on:
two dogs, a golden one and a black one, together carry a stick in their mouths as the run side by side with contented, happy looks on their faces.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This might feel counter-intuitive, but taking a look at ASX shares that have not performed well in recent times can sometimes be fruitful.

Those shares are obviously now cheaper, and the business may still be solid with excellent prospects. 

After all, the stock price might have tanked for external reasons that have nothing to do with the internal operations.

In a recent memo to clients, the team at Celeste Funds Management highlighted two such examples that they're still keeping the faith in:

Astounding record of acquisitions

PSC Insurance Group Ltd (ASX: PSI) shares lost 8.3% during March as it raised $80 million to fund future acquisitions.

The dilution may have contributed to the stock price fall, but the Celeste team feels like the extra cash will eventually become a positive.

"This raising brings net leverage below 2.0x (compared to a stated threshold of 2.0 to 2.5x) and will be focused on Australian and UK commercial broking opportunities," the memo read.

"Since January 2021, PSC has completed 12 acquisitions contributing $16 million in EBITDA at an average multiple of 7.5x."

This astounding history gives analysts at Celeste much confidence.

"Given this track record, their solid pipeline of opportunities and a supportive operating environment, we are confident PSC will deploy the capital in an earnings accretive manner."

PSC Insurance shares are down 4.7% for the year so far, while handing out a 2.44% dividend yield.

Other analysts aren't completely convinced yet, with 3 of the 5 surveyed on CMC Markets rating PSC shares as a hold. The remaining two recommend as a buy.

Is it better to understock or overstock? 

There is no sugar-coating this. City Chic Collective Ltd (ASX: CCX) shares have lost half their value in 2022.

Celeste analysts watched in horror over March as the fashion retail stock lost another 13% that month.

"Despite delivering strong top line growth, the market recoiled in response to elevated inventory levels in response to global supply chain disruptions, and sentiment remains weak," the memo read.

"However, prudent inventory stocking will enable CCX to participate in key sales periods like summer in the Northern Hemisphere, with CCX flagging positive early indications."

The alternative to overstocking is understocking and underselling. But this has played havoc with their US rival Torrid Holdings Inc (NYSE: CURV)'s bottom line.

"Ultimately City Chic continues to deliver a quality product with high demand in a growing target market – evidenced by strong growth in online sales, particularly in its key growth market of USA," stated Celeste analysts.

"We believe City Chic is ripe with opportunity despite short-term supply chain issues."

The broader fund management community agrees, with 8 of 11 analysts surveyed on CMC Markets rating City Chic shares as a "strong buy".

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 has recommended PSC Insurance Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Broker looking at the share price.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Broker Notes

Guess which ASX 200 share offers 12% upside and a 4% dividend yield

Bell Potter just slapped a buy rating on this stock.

Read more »

A man leaps from a stack of gold coins to the next, each one higher than the last.
Broker Notes

Qantas or Telstra share price: Which will climb higher in 2024?

Let's see what top broker Goldman Sachs has to say about these ASX blue-chip stocks.

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Small Cap Shares

3 small-cap ASX shares with 'long runways for growth'

DNR's Sam Twidale reckons investors could do worse than buy these guys for the long run.

Read more »

Woman using laptop for job search
Investing Strategies

2 ASX 200 shares to buy for 'strong growth' at decent prices right now

Searching for a bargain? Here's a pair that Catapult's Dylan Evans has his eyes on at the moment.

Read more »

A Paladin Energy miner wearing a hard hat and protective gear stands in front of a large mining truck and smiles to the camera.
Energy Shares

Uranium is set to boom, and this is the 'premium' ASX stock to buy

Shaw and Partners' Jed Richards reckons these are the shares to buy for the nuclear energy theme.

Read more »

female in hard hat crosses fingers
Investing Strategies

The ASX 200 stock that could get second time lucky

These shares have failed to impress in 2024, but many experts believe it's a bargain buy.

Read more »