'Deep value': 2 ASX shares this expert will pounce on this dip

Here's a pair of stocks that have plummeted in recent times but are apparently destined for great things.

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As stock markets around the world digest the consequences of the US Federal Reserve and Bank of England meetings this week, many ASX shares remain heavily discounted.

Shaw and Partners portfolio manager James Gerrish told his Market Matters newsletter that the Australian market will rise heading into Christmas.

"We're not expecting any major surprises from the Fed and/or BOE but we do believe another relief rally will then become a strong possibility."

As such, buying up cheap stocks now could prove fruitful in the coming period.

Here are two ASX shares that tempt Gerrish's team right now:

'Value has been restored'

The Market Matters team is looking to add construction materials provider James Hardie Industries plc (ASX: JHX) to its flagship growth portfolio.

The share price has lost almost 43% since the start of the year.

"James Hardie is highly leveraged to the US housing market, which, like our own, is understandably out of favour as interest rates surge higher," said Gerrish.

"But there's already plenty of bad news factored into this stock and sector."

James Hardie shares went into the Queen's memorial holiday at $32.54 each. 

The update delivered during last month's reporting season showed "nothing too untoward", according to Gerrish, and that 80% of the analyst community currently rates the stock as a buy.

"We believe deep value is slowly approaching into current weakness," he said.

"While another dip under $30 cannot be discounted in today's hawkish environment, we believe value has been restored and the stock's in a definite accumulation zone."

Earnings that rise with inflation + reliable dividend

In the income portfolio, Gerrish's team favours infrastructure owner APA Group (ASX: APA).

"The owner & operator of gas transmission and distribution assets in Australia offers two key things we like in this uncertain environment," said Gerrish.

"Predictable earnings that rise with inflation (90% of earnings linked to CPI) and a dependable dividend that is now back up above 5% given the share price weakness."

Indeed, the APA share price has plunged 15.9% since 8 August.

The Market Matters team has held the stock in the past, and will buy back in when the price sinks to the $10 mark.

APA shares hit the Thursday public holiday sitting at $10.24 apiece.

Gerrish evaluates APA shares compared to bond yields.

"APA generally trades at a 2.8% premium to the 10-year bond yield," he said.

"While it is currently only 1.63% above 10-year yields, below $10 and applying a more typical payout, we're getting closer to this number."

Motley Fool contributor Tony Yoo 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 positions in and has recommended APA Group. 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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