Value investing is where people buy good quality companies whose share prices have fallen below the intrinsic value of the businesses.
As per our Foolish guide to value investing:
Investors who use the value investing strategy hope that a company's share price will rise as more people come to appreciate the true intrinsic value of the company's fundamental business.
In the year to date, ASX growth shares have been smashed as inflation and interest rates rise.
Growth shares are typically young companies with debt. They're usually highly leveraged because they're growing, so they've needed to borrow. Some aren't even profitable yet — but as the share market trades on future performance — their share prices have risen, hence the reference to 'growth shares'.
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Which ASX growth shares are looking good value?
Value investors love buying the dip and using dollar-cost averaging to build their long-term holdings. And you could say we've seen a dip in share values this year, right?
The S&P/ASX 200 Index (ASX: XJO) is down 11% and the S&P/ASX All Ordinaries Index is down 12% in the year to date.
Much worse, the S&P/ASX All Technology Index (ASX: XTX) is down 33%. (Australian tech stocks are typically considered growth shares.)
Two experts reckon many high-quality ASX growth shares have been oversold and are now attractive buying opportunities.
The qualifier there is high quality.
As GMO's head of focused equity, Tom Hancock, points out: " … growing quality companies … have an extra layer of protection in rising rate environments because they are less reliant on capital markets."
Hancock writes on Livewire: " … this year has presented an opportunity for value investors to take a fresh look at growth companies, especially quality growth companies."
In another Livewire article, Tim Richardson of Pengana International Equities Limited says there has been "an indiscriminate sell-off in growth companies", and high-quality stocks have been caught up in it.
Richardson writes:
The indiscriminate sell-off in growth companies this year has extended beyond those with little or no cash flow and dubious business models.
Quality growth stocks across the board have underperformed value stocks, leaving some great companies priced at more attractive valuation levels. This implies higher potential returns over the medium-to-long term.
Richardson points out that many high-quality growth shares are exposed to new, long-term trends caused by COVID-19. He says:
Working from home is here to stay. This brings growth opportunities for a wide range of disruptive businesses as people continue to work and shop at home, whilst consuming media, entertainment and dinner 'from the couch'.
The decarbonisation of the global economy is now irrevocably underway, accelerated by the US Inflation Reduction Act.
Decarbonisation benefits companies in a range of sectors (e.g. electric vehicles, green project finance and renewable energy technology) that enjoy low sensitivity to the business cycle.
While neither Richardson nor Hancock reveal any specific growth stocks they like, my Foolish colleague Kate identifies several companies benefitting from these trends in her article, What is a growth stock and how to choose one.
Companies leveraged to the work-from-home trend include cybersecurity companies Tesserent Ltd (ASX: TNT) and Prophecy International Holdings Limited (ASX: PRO), workflow platform provider Whispir Ltd (ASX: WSP), and CV Check Ltd (ASX: CV1), which helps companies bring employees on board.
Kate also writes that decarbonisation is benefitting companies in the hydrogen sector, such as Pure Hydrogen Corporation CDI (ASX: PH2).
Hancock said he and his team have been buying quality ASX growth shares this year.
Hancock says:
This year's gyrations in growth stocks have created an interesting opportunity for our Quality Strategy in which we have been able to acquire shares in high-quality growth companies at prices that have seemed to us to overplay the role of rates in determining investment results.
