Volatility on the ASX share market can open up opportunities to buy some good businesses, according to the experts.
Leading broker Morgan Stanley rates some leading S&P/ASX 200 Index (ASX: XJO) shares as buys, with compelling upside.
Many businesses on the ASX have seen their share prices drop in recent days and weeks. While there is much fear in the market about the effects of inflation and interest rates, investors may also be able to find some long-term opportunities.
Brokers can give a helpful hint about which ASX 200 shares could be worth owning at these prices, so let's look at two of the buy-rated picks.
Goodman Group (ASX: GMG)
Goodman is one of the largest property businesses on the ASX. It has a global portfolio of properties and projects in the industrial real estate sector.
Morgan Stanley currently rates it as a buy ( or 'overweight') with a price target of $25.98. That implies a potential rise of more than 40% over the next year. One of the key factors that the broker likes about Goodman is its growing rent, which has been increasing at a pleasing pace over the last several years.
As an example, in the company's FY22 third-quarter update, Goodman revealed a 12-month rolling like-for-like net property income (NPI) growth of 3.7%. It also had a five-year weighted average lease expiry (WALE), giving the business income visibility.
Another thing that Morgan Stanley likes is the ASX 200 share's property development pipeline. It said that the concentration of its workbook in desirable locations has allowed it to increase its development work in progress (WIP) to $13.4 billion. Completions for the nine months to 31 March 2022 were $4.7 billion, with $6 billion in total expected for FY22.
Sonic Healthcare Ltd (ASX: SHL)
Sonic Healthcare is a large pathology healthcare business. It has operations in a number of countries including Australia, the US, and Germany.
It's currently rated as a buy ('overweight') by Morgan Stanley. The price target is $40, implying a possible rise of around 20%. The broker points to COVID-19 testing as a positive for earnings in FY22.
The company's COVID-19 testing operations are expected to give FY22 earnings a boost, as they did in FY21. However, the broker is expecting Sonic's earnings to return to a more normal level in FY23. With that in mind, the Sonic Healthcare share price is valued at 10 times FY22's estimated earnings and 16 times FY23's estimated earnings.
The company said within its FY22 half-year result release that it's expecting a "sustainable level of COVID-19 testing into the future, including routine COVID testing, screening programs, variant testing, whole genome sequencing and antibody tests".
However, Sonic's base business revenue is also rising. HY22 base revenue was up 4.3% year on year and up 2.5% compared to HY20 (which was before COVID-19).
A bonus is that Morgan Stanley is expecting the company to keep increasing its dividend over the next couple of years, which matches Sonic's 'progressive dividend policy'.
