The S&P/ASX 200 Index (ASX: XJO) closed up a robust 0.77% on Friday at 6,578.7 points.
In 2022, the index has dropped by around 13%, presenting ASX investors with potential new opportunities.
Top broker Goldman Sachs says new value is emerging. In a new note, the broker names its best ASX 200 picks as the market correction continues.
ASX 200 P/E ratio now 15% below 20-year average
The broker says the ASX 200 is trading at a 12.2x forward price-to-earnings (P/E) ratio, according to reporting in the Australian Financial Review (AFR).
Goldman Sachs analysts Matthew Ross, Bill Zu, and Tony Wu say that’s 15% below the 20-year average.
According to the note:
From a valuation perspective, our global strategists believe that market pricing is more consistent with a mild recession than an average or deep recession, a view we share in the context of the Australian market.
While we expect multiples on most ‘growth’ stocks to continue to unwind, a growing number of these names have now de-rated so significantly that they have fallen out of our “High P/E” screen and now trade at significant discounts to their five-year averages.
So, which ASX 200 shares does Goldman like?
Goldman’s picks of the ASX 200 are A2 Milk Company Ltd (ASX: A2M), Aristocrat Leisure Limited (ASX: ALL), ARB Corporation Limited (ASX: ARB), Blackmores Limited (ASX: BKL), Breville Group Ltd (ASX: BRG), Domain Holdings Australia Ltd (ASX: DHG), EML Payments Ltd (ASX: EML), Pinnacle Investment Management Group Ltd (ASX: PNI), and Reece Ltd (ASX: REH).
Goldman notes that the impact of higher interest rates and slowing economic growth are yet to feed into consensus earnings revisions.
The broker said investors should keep in mind that while long-duration growth assets have de-rated, they remain expensive relative to the current level of interest rates.
Goldman says commodity stocks are trading well below all prior valuation troughs, and they comprise a uniquely large component of the ASX 200.
It also said ASX shares offer slightly less value than bonds compared to before the sell-off.