After a highly tumultuous year for the share market in 2022, there's no shortage of ASX value shares right now. And investors can somewhat take their time in finding and researching them, given many of the experts think the chances of a genuine rebound or a new bull run any time soon are slim at best.
Indeed, if the United States goes into recession, ASX shares could definitely go lower than they are today.
But that's all short-term stuff. Here at the Fool, we advocate buying high-quality ASX shares and holding them for the long term. Market downturns and corrections simply allow you to buy them cheaply.
Many good-quality mid-cap and large-cap shares are trading well under a 15 times price-to-earnings (P/E) ratio right now. That's a good starting point in determining which ASX shares are undervalued.
Here we outline three ASX shares that could be considered undervalued within various contexts.
JB Hi-Fi Limited (ASX: JBH)
The electronics and home appliances retailer surprised the market by beating consensus estimates significantly in its preliminary FY23 half-year results released this week.
Despite market fears of inflation and interest rates potentially reducing consumer discretionary spending, JB Hi-Fi revealed record sales and earnings. Group sales increased 8.6% year-over-year to $5,278.5 million. Net profit after tax (NPAT) screamed 14.6% higher to $329.9 million.
As my colleague Mitch reported, management attributed the results to elevated demand for their products and well-executed Black Friday and Boxing Day promotions.
In terms of value, JB Hi-Fi is currently trading on a P/E of 10 times.
As we explain in our Education Centre, the P/E ratio measures the current share price against the company's earnings per share (EPS). This provides insight, within context, as to whether a company is undervalued or overvalued. Generally, ASX shares with a P/E under 15 times are considered cheap.
A recent note out of Citi reveals its analysts have retained their buy rating and lifted their price target on JB Hi-Fi shares to $55. Morgans has retained its add rating with an improved $53 price target.
The JB Hi-Fi share price is currently $47.90, implying about a 13.5% potential upside for investors in 2023.
Lovisa Holdings Ltd (ASX: LOV)
Lovisa was the top-performing ASX 200 retail share of 2022 with a 15% share price gain. Every other retail share in the benchmark index lost value last year. That says a lot about the resilience and future growth prospects of this affordable fashion jewellery and accessories business.
As my Fool colleague Cathryn reports, Lovisa does things differently to other ASX 200 retail shares.
As part of its vertically-integrated business model, Lovisa designs and manufactures all of its products in-house. This boosts Lovisa's gross margins, which came in at a whopping 79% in FY22. Lovisa also has smaller stores, which means lower rents. This contributed to an FY22 EBITDA margin of 31%.
Lovisa is currently trading on a P/E of 47 times. On face value, that screams 'overpriced'. But you have to take P/Es with a pinch of salt when it comes to young, up-and-coming companies.
An elevated P/E can also indicate market confidence about a company's future. Sometimes investors are willing to overpay today if they expect strong earnings and share price growth in the future. And given Lovisa's seemingly bright future at this point, some investors may see this one as 'undervalued'.
As we recently reported, broker Canaccord Genuity has lifted its 12-month share price target on Lovisa by 22% to $27.75. Based on today's share price of $25.64, that's a potential 8% upside for investors in 2023.
BetaShares Nasdaq 100 ETF (ASX: NDQ)
The ability to invest in 100 of the largest non-financial businesses on the US NASDAQ exchange is certainly appealing. Many of them are the No. 1 or No. 2 market leaders in their fields. Examples are Microsoft, Apple, Alphabet, Amazon.com, Tesla, Adobe, Intel, and Meta Platforms.
As you can see, there are a lot of tech companies in this exchange-traded fund (ETF). They lost a fair bit of valuation in last year's tech sell-off as interest rates began to rise.
As my Fool colleague Sebastian reports, the Microsoft share price dropped almost 30%, Amazon lost almost 50%, the Alphabet share price declined almost 40%, and the Tesla share price sank 65%. Of course, this affected the NDQ share price, too.
Today, there are signs that US inflation is cooling, which might mean interest rates won't go much higher and the world's biggest economy could even avoid a recession. Either way — no matter what happens in 2023 or 2024 or even 2025 — we live in a high-tech age and this is a decades-long investment trend.
Current economic headwinds simply provide a buy-the-dip opportunity on an ETF that should arguably be a lifelong holding. The NDQ ETF is currently trading at a 24% discount to this time last year.
