Leading fund manager Wilson Asset Management (WAM) has revealed two ASX shares that it rates as buys within its WAM Research Limited (ASX: WAX) portfolio.
WAM operates a few different listed investment companies (LICs).
One of the LICs is called WAM Research, which looks at the smaller businesses on the ASX where there may be more hidden gems.
WAM describes WAM Research as an LIC that "invests in the most compelling undervalued growth opportunities in the Australian market".
The WAM Research portfolio has delivered gross returns (that's before fees, expenses, and taxes) of 15.1% per annum since its investment strategy changed in July 2010. This compares to the All Ordinaries Total Accumulation Index (ASX: XAOA) return of 9.4% per annum.
These are the two undervalued ASX shares that WAM outlined in its most recent monthly update for WAM Research.
GUD Holdings Limited (ASX: GUD)
WAM describes GUD Holdings as a business that owns a portfolio of companies in the automotive aftermarket and water products sectors. The main two countries where it operates are Australia and New Zealand.
The fund manager noted that in a recent trading update, the ASX share said that its revenue had "rebounded strongly" in March as the disruptions caused in January 2022 by the Omicron variant of COVID-19 slowed.
GUD Holdings pointed to the historically high levels of dealer sales backlogs, which are expected to support revenue growth over the short term. Sales of new vehicles are expected to return to pre-COVID levels in the medium-term.
The ASX share said that it expects inflationary pressures in freight, supply, and material costs. GUD reaffirmed its previous guidance for FY22 for underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $155 million to $160 million.
WAM says that its outlook for GUD Holdings remains strong and the fund manager is confident that the company will deliver on its FY22 guidance.
Viva Energy Group Ltd (ASX: VEA)
The fund manager describes Viva Energy as one of Australia's leading energy companies that supplies approximately 25% of the country's liquid fuel requirements.
Viva Energy owns and operates the Geelong Refinery in Victoria and operates bulk fuels, aviation, bitumen, marine, chemicals, and lubricants businesses.
In April, Viva Energy gave the market an update for the quarter for the three months to 31 March 2022. This update showed a 9% increase in total group volumes over the prior comparative period, driven by "strong" diesel sales.
WAM also noted that aviation sales volumes also increased 3% year on year, with 16% growth compared to the three months to 31 December 2021. This growth occurred after improved domestic aviation demand from leisure travel.
The fund manager said that as oil demand recovers globally, it continues to see upside for Viva Energy and expects refining margins to grow and beat earnings expectations.
Other investments
These aren't the only two names in the portfolio. At the end of April 2022, WAM Research also owned names like Lovisa Holdings Ltd (ASX: LOV), Treasury Wine Estates Ltd (ASX: TWE), and Brickworks Limited (ASX: BKW).
