2 quality ASX shares to buy in this volatility: experts

Experts think that these two ASX shares are good ideas amid this volatility.

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Key points

  • Experts think these two ASX shares are buys amid heavy declines in their share prices
  • Xero is a leading accounting software business
  • Temple & Webster is a retailer of homewares and furniture

The ASX share market is expected to have another volatile day today. But this volatility is opening up some opportunities to buy some quality, beaten-up businesses according to experts.

Legendary investor Warren Buffett once said about investing during difficult times:

Be fearful when others are greedy and greedy when others are fearful.

Here are two ASX shares that have fallen heavily and have brokers excited:

Xero Limited (ASX: XRO)

Xero is one of the world’s largest cloud accounting businesses with over three million subscribers at last count. However, its market capitalisation is rapidly falling. At the time of writing, the Xero share price has dropped 42% since the start of the year.

The broker Ord Minnett currently rates the ASX tech share as a buy, with a price target of $107. That implies a possible upside of close to 30% over the next year. Ord Minnett likes the market share that Xero has captured in some key markets like the UK and Australia. It also thinks the business is exposed to a good tailwind of businesses transitioning to cloud software.

The company reported in its FY22 half-year result that its number of subscribers increased by 23% to 3.01 million and the annualised monthly recurring revenue (AMRR) rose by 29% to NZ$1.13 billion.

Xero’s CEO Steve Vamos noted the compelling environment for the business when he said:

There are multiple drivers for cloud-based software adoption, including digitisation of tax compliance, innovation of financial services and an imperative for small businesses to prepare for the future. These, combined with our commitment to purpose, relationship with customers and partners, and proven history of innovation all point to exciting opportunities ahead for Xero.

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is one of the largest online-only retailers in Australia.

While the company has continued to report revenue growth and business progress, the Temple & Webster share price has not escaped from the heavy sell-off seen this year. At the time of writing, the Temple & Webster share price has fallen 61% in 2022.

The company sells more than 200,000 homewares and furniture products from hundreds of suppliers. It runs a ‘drop ship’ model where suppliers send products directly to customers which enables faster delivery times and reduces the need to hold inventory, allowing for a larger product range. The ASX share also has a private label range.

Temple & Webster has also launched a home improvement website called The Build which aims to provide its customers with what it claims its the “biggest and best” range. The website includes products such as bathroom fixtures, lighting fixtures, blinds and curtains, and wallpaper. It plans to sell future product categories such as flooring, outdoor living, tools, equipment and more in the coming months. Management says this is a $16 billion addressable market opportunity.

UBS currently rates the company as a buy, with a price target of $8.20 after seeing its recent update.

Between January to April 2022, the ASX share’s revenue rose 23% year on year. It said that its diversified supply chain is holding up “well” and is underpinning growth.

While the earnings before interest, tax, depreciation and amortisation (EBITDA) margin is expected to be in the low single digits in FY22, the company is choosing for it to be low by investing in so many areas for growth such as marketing, artificial intelligence, augmented reality, logistics, and its private-label products.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Temple & Webster Group Ltd and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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