If all the turbulence in share markets is confusing, it's worth looking at what the professionals have been buying for their own funds.
Listed investment company QV Equities Ltd (ASX: QVE) on Thursday held an update for investors in Sydney.
The portfolio managers from IML, which operates the fund, revealed four ASX shares they've recently added.
"They're very good examples of the types of companies we like to own at IML," said portfolio manager Marc Whittaker.
"Companies with recurring earnings, with good sustainable competitive advantages, with good management teams, and companies that can grow."
They come from a diverse range of sectors:
- Codan Limited (ASX: CDA)
- Brambles Limited (ASX: BXB)
- TPG Telecom Ltd (ASX: TPG)
- GUD Holdings Limited (ASX: GUD)
Tailwinds that have nothing to do with rising interest rates
Each of these ASX shares have specific internal tailwinds that are independent of external economic factors.
Among other products, Codan produces metal detecting equipment, which is considered of higher quality than its rivals.
The company enjoyed a global boom in sales during the COVID-19 lockdowns as amateurs took to looking for treasures as a new hobby.
But the share price has been caught up in the technology sell-off, losing more than 19% of its value so far this year.
Whittaker said that this just presented an excellent buying opportunity for a "strong cash-generating" business.
"What we think is a global leader in mine detection and what we think is a strong growth opportunity in communications, you're getting all that for 13 times PE, which we think is a very compelling valuation — and a dividend yield of close to 4%."
'Beautiful business'
Brambles produces pallets for commercial shipping, which are returned and reused.
"'Pallet pooling' is a beautiful business because it does come with very powerful network effects," said Whittaker.
"On the back of that, network effects produce very strong cash generation."
Acquisition interest from private equity earlier this month, although it fell through, indicates how tempting the current stock price is, he added.
"We're not sure that bid's totally gone away… But what that bid points to is the attractiveness of this business model."
Meanwhile, TPG has a whole series of internal actions it can take to increase the value of the business.
And the industry is at a point in its cycle where all the players are increasing prices.
"If you think about telecommunications businesses, a lot of their cost base is fixed," said Whittaker.
"So if you can grow your revenues at CPI or greater, then all of a sudden you start to see earnings growth as well."
Automotive parts and accessories maker GUD made a pair of acquisitions in recent times that the QVE team feels is a catalyst for a bright future.
"GUD is a great example of a company which I think is high quality, but where the quality of that company is improving as well," said Whittaker.
"It's gone away from just being an internal combustion engine-exposed auto parts supplier to a company which is really agnostic to whether you're driving an EV or driving a diesel or driving a petrol car."
