Buy these 2 ASX shares on sale right now: top broker

A top broker has revealed two ASX shares which have fallen heavily but look like good buys.

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Key points

  • Below are two ASX shares that have fallen, but a leading broker thinks they’re great value
  • REA Group is a leading property advertising business
  • Reece is a leading supplier of bathroom products

A leading broker has identified two ASX shares that have international growth potential and, he believes, look like good investment opportunities.

On top of that, the below two ASX shares have fallen heavily recently amid general market volatility.

The broker has suggested there’s plenty of potential longer-term upside with these two ideas:

REA Group Limited (ASX: REA)

REA Group describes itself as a multinational digital advertising business that specialises in property. Two of its key assets are leading residential and commercial property websites, realestate.com.au and realcommercial.com.au.

It also has other assets including mortgage brokers Home Loans and Mortgage Choice, as well as investments in international property sites in India, China, the US, Malaysia, Singapore, Thailand, and Vietnam.

How much cheaper is the company? At the time of writing, the REA Group share price has dropped by 34% in 2022.

The broker Ord Minett currently rates the company as a buy with a price target of $153, implying a possible rise of more than 30% over the next year.

The broker pointed out that the FY22 third quarter wasn’t quite as good as expected, but the company’s profit margins are improving.

For readers who didn’t see that quarterly update, for the three months to 31 March 2022, revenue rose 23% to $278 million and operating earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 29% to $156 million. Free cash flow jumped 39% to $91 million. These numbers came after a 11% rise in national listings.

The ASX share is expecting slower growth in the fourth quarter of FY22. April national residential listings were down 8% year on year.

Reece Ltd (ASX: REH)

This business has been operating for more than 100 years. It distributes plumbing, waterworks, and HVAC-R (heating, ventilation, air conditioning, and refrigeration products) in Australia, New Zealand, and the US.

It’s currently rated as a buy by the broker Ord Minnett, with a price target of $23. That implies a possible rise of more than 30%. The broker thought the performance in the US in the first half of FY22 was good.

In that result, revenue increased 17% to $3.6 billion, earnings before interest and tax (EBIT) went up 16% to $275 million, and net profit after tax (NPAT) grew by 28% to $157 million.

The company’s Australia-New Zealand (ANZ) segment saw revenue rise by 11% to $1.7 billion and EBIT increased 6% to $186 million. Meanwhile, US revenue rose 24% to $1.87 billion and EBIT jumped 44% to $89 million.

The ASX share is looking to capture more market share in the US by investing for growth. It’s putting money towards its store rollout and its upgrade program is progressing. Its online offering has been relaunched and the Reece corporate brand rollout has also commenced. Its improvement program is also progressing. The company says it has introduced “key” automation processes and operational upgrades.

Reece is using its learnings from the ANZ market to make progress in the US. The company said it was optimistic about the demand drivers in the second half of FY22 despite a “number of risks” that it said will require “careful management”.

How much cheaper is the company? Since the start of 2022, the Reece share price has dropped around 41%.

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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. 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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