As the Santa rally gathers pace, buyers are re-entering the share market, looking to catch a ride uphill into 2023.
But in an environment of rising interest rates and a slowing economy, stock selection is critical.
Shaw and Partners portfolio manager James Gerrish this week mentioned three ASX shares that look prime for a rally:
The ASX shares going for 'significant discounts'
This year has been brutal for any ASX share involved in the real estate industry.
A whopping 275-basis point interest rate rise would certainly do that. Most experts are predicting that by Tuesday afternoon, 2022 will end with a 300-point hike.
However, Gerrish feels like real estate stocks have been punished enough.
"What we are reading and [listening] to around the outlook for interest rates is well and truly factored into the market," he said in a Market Matters Q&A.
"Real estate trusts/companies are trading at significant discounts to the carrying value of their assets — 30% in some cases."
Centuria specifically has been hard done by, Gerrish added.
"Markets are prone to get too optimistic and too pessimistic on things, we think broadly the latter has played out with Centuria."
The Centuria share price has almost halved since the start of the year, and Gerrish did admit one weakness with the investment company.
"CNI is at the higher end of the risk spectrum as they have made the decision not the hedge interest rate risk," he said.
"The Australian 10-year [bond] yield, for example, is down ~0.70% from its highs so this is working out okay so far. However, many of the other property companies have taken a more conservative route and spent large sums on hedging for certainty."
Who wants a drink?
The Treasury Wine share price has enjoyed a nice 10% rally since early October.
"We like TWE as a business. The company recently gave a good update and we think this has legs to rally further."
Gerrish noted costs for the current financial year are forecast to remain steady from the previous year, which is vital heading into a period of economic weakness.
"They also have expectations of solid growth and EBITS margin expansion towards the 25%+ group target in FY23, which implies they have pricing power — an important element as rates rise."
The Market Matters team actually doesn't hold Treasury Wine shares at the moment, but will pounce as soon as there's a dip.
"Any pull backs to the $13 region will be attractive."
Meanwhile, Gerrish is also a fan of UK banking group Virgin Money.
"Virgin Money actually looks good following their last update. [We] could easily see it rallying into the mid $3s."
Virgin shares closed Wednesday at $3.05.
