The second half of 2020 and most of 2021 was a great time for many ASX shares. Many share prices soared. There were several industries that got a huge bump, like technology and e-commerce. But now a lot of heat has been taken out of the market.
There are a number of winners that have turned into big losers.
I think that some of the plunges have been realistic. Higher interest rates do challenge the business models of some companies.
But, with so much damage being done to the market capitalisations of some of those former darlings, is it possible to find some great bargains?
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Volatility is normal
Before getting to some specific names, I want to point out that the share market regularly goes through difficult times. Volatility is just the price of admission to this long-term wealth-building market.
It's somewhat ironic that every past market sell-off looks like an opportunity, and all current (and future) risks look like reasons to avoid investing.
The COVID-19 crash and GFC were two periods of huge declines for investors. In hindsight, those periods were a bad time to sell and a good time to buy.
I'd guess there may be another time that the share market drops by more than 20% sometime in the next decade. Each time the market falls heavily, it's unpredictable and seems scary, but I think of it as an opportunity to buy shares cheaply.
Where to look for investment opportunities
I certainly don't have a crystal ball.
But, I think it's worthwhile to consider a contrarian viewpoint.
During the COVID-19 crash, investors that went against the panic and thought the world would get through have been handsomely rewarded.
Investors that thought JB Hi-Fi Limited (ASX: JBH) could survive and thrive against Amazon entering Australia have done well.
Right now, there are a number of things that the market seems to be suggesting. Many bricks and mortar ASX retail shares have been sold off. I don't think retail will permanently be in difficult times. Names like Wesfarmers Ltd (ASX: WES), Adairs Ltd (ASX: ADH) and Nick Scali Limited (ASX: NCK) spring to mind.
There are a number of ASX online retailers that have been hit particularly hard. Yes, some of them have individual challenges to deal with. But, I think the ones that are already leaders are worth looking at because of the long-term expectation that digital adoption of online shopping will continue.
A few names continue to invest for growth, so I think they can come out of this period in a much stronger position.
A couple of ASX share ideas
Looking specifically at COVID winners that have turned into post-pandemic losers, I think Adore Beauty Group Ltd (ASX: ABY) and Temple & Webster Group Ltd (ASX: TPW) are two names worth looking at.
In 2022, the Adore Beauty share price is down 62%, and the Temple & Webster share price is down 53%.
Adore Beauty is the leading online beauty business in Australia. While FY23 revenue growth may be volatile, I thought it was impressive that returning customers continued to climb in the first quarter of FY23, which is a good sign for repeat purchasing and for the company not needing to spend as much on marketing. Its loyalty program and mobile app are also promising.
I'm excited by the ASX share launching private label brands, while also expanding into New Zealand. It's expecting higher profit margins over time.
The leading online homewares and furniture retailer, Temple & Webster, is doing a lot to drive future growth. I like the investment in technology like an AI interior design service, as well as augmented reality. Increased scale will also come with improved margins and efficiencies.
Both of these ASX shares have promising futures, in my opinion. I'm particularly excited by Temple & Webster with its expansion into home improvement and the company's large overall addressable market.
