The ASX 200 is still full of cheap shares despite this year's surge and I'm ready to buy more

Despite the rebound for some names, the ASX 200 could be a fertile hunting ground.

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Key points

  • The ASX 200 has seen a strong performance in the last 12 months thanks to banking and miners
  • Higher interest rates have hurt valuations of some sectors like tech, retail and building products
  • I think names such as James Hardie, Wesfarmers and Xero could be good performers over the longer-term

Somewhat surprisingly, the S&P/ASX 200 Index (ASX: XJO) is up more than 6% over the last year, while the S&P 500 Index (INDEXSP: .INX) is down by 11% over the last 12 months.

The ASX 200 has done so well that it's close to its all-time high.

However, I'd largely put that down to the two sectors that make up a significant part of the index – banks and resources.

With higher interest rates and a higher iron ore price, it's good times for names like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and ANZ Group Holdings Ltd (ASX: ANZ).

Still plenty of opportunities out there

While ASX's biggest industries are doing well, the share prices of (at least) three other areas still look promising.

ASX tech shares were smashed in 2022, so I think those names that have been hit heavily represent much better buying. For example, compared to their peak prices, the Xero Limited (ASX: XRO) share price, the REA Group Limited (ASX: REA) share price and the Seek Ltd (ASX: SEK) share price are all down materially.

Fintechs are also down, despite elevated earnings on the cash they hold, such as Hub24 Ltd (ASX: HUB) and Netwealth Group Ltd (ASX: NWL).

Higher interest rates do reduce asset prices, in theory. But, they're still the same businesses they were before. So, I think the much lower price we're seeing with these names is giving us opportunities to invest at a cheaper price.

There are some areas within the ASX 200 that may see an earnings hit in 2023, but I believe the lower share prices make up for that, though some share prices have risen a fair bit.

Retail and building products could be interesting hunting grounds to look at. Over the next three to five years, I think ASX 200 shares like Brickworks Limited (ASX: BKW), James Hardie Industries plc (ASX: JHX), CSR Limited (ASX: CSR), Wesfarmers Ltd (ASX: WES), JB Hi-Fi Limited (ASX: JBH), Premier Investments Limited (ASX: PMV) and Metcash Limited (ASX: MTS) could also perform well.

Ready to keep investing

I think that a number of these shares will surpass their former heights in the coming years as they grow their underlying operations.

While some industries do go through cycles, I think the lower point of the cycle is a good time to invest in retailers, building product businesses and ASX tech shares.

I'm going to be putting more money to work this year, which will hopefully accelerate my wealth-building efforts in the coming years. Buying at a lower price also means that I'm getting a higher dividend yield from my investments.

I will probably write an article about the next ASX 200 share that I buy, so keep an eye out for that.

Motley Fool contributor Tristan Harrison has positions in Brickworks and Fortescue Metals Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Hub24, Netwealth Group, and Xero. The Motley Fool Australia has positions in and has recommended Brickworks, Hub24, Netwealth Group, Wesfarmers, and Xero. The Motley Fool Australia has recommended Jb Hi-Fi, Metcash, Premier Investments, REA Group, Seek, and Westpac Banking. 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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