These 3 ASX 300 shares are 'significantly undervalued': fund manager

Here are three names that an expert has picked out as opportunities.

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Key points

  • L1 Capital has named three ASX 300 shares that it believes are undervalued, including building products business James Hardie
  • BlueScope Steel is another idea, with its new recycling division and plans for growing capacity
  • Imdex was the final idea, after the company's recent acquisition

There are a handful of very promising S&P/ASX 300 Index (ASX: XKO) shares to consider investing in, according to the fund manager L1 Capital.

In its recent monthly update for the listed investment company (LIC) L1 Long Short Fund Ltd (ASX: LSF), the fund manager said it's relatively cautious about the outlook because of the "lagged impact of the significant interest rate hikes, weakness in leading economic indicators, gradually increasing pressure on corporate earnings and tail-risk from geopolitical tensions".

L1 Capital suggested that ongoing market volatility remains likely as investors reassess their outlook for the economy, interest rates, and corporate profits. However, the fund manager believes there are "numerous mispriced stocks" that can deliver "attractive long-term returns".

Below are three of the names that were picked out.

James Hardie Industries plc (ASX: JHX)

The James Hardie share price had a strong performance in January 2023, rising by 19% as housing sentiment improved for US homebuilders. The US market has noted a "sharp increase" in new housing demand in January while the US 30-year fixed mortgage rates fell back to 6% after peaking above 7% in November 2022.

For investors who don't know what James Hardie does, it's described as the market leader in fibre cement siding and has been increasing its market share in the US for the last two decades.

Around two-thirds of its revenue comes from repair and remodelling exposure, while the rest is from new housing.

The fund manager believes James Hardie is well-placed to manage a period of "softer" new housing demand. After this period, it could "grow at an above-market rate for many years to come".

BlueScope Steel Limited (ASX: BSL)

BlueScope steel is a sizeable steel business with operations in Australia and the US. The BlueScope share price went up 16% in January amid a recovery for US steel spreads, providing a "tailwind for the company's second-half earnings expectations".

The fund manager pointed out that the ASX 300 share is focused on growing its US operations with 850kt per annum capacity expansion at the North Star facility in Ohio. This follows the acquisition of the US's second-largest metal coating/painting company.

BlueScope is also focused on the establishment of BlueScope Recycling from its acquisition of the MetalX recycling business.

Even though the BlueScope Steel share price has risen, L1 Capital thinks the market "significantly undervalues BlueScope's unique and strategic asset base".

Imdex Limited (ASX: IMD)

The Imdex share price went up 16% last month after the company announced a first-half result that beat market expectations.

The ASX 300 share also announced the acquisition of Devico, a leading global mining technology company based in Norway.

The fund manager believes the acquisition is "strategic and value accretive and will accelerate the company's global growth strategy".

L1 Capital pointed out that Imdex raised $224 million to fund the acquisition, which was "well-supported" by the market. The fund manager concluded with the following thoughts on the business:

We believe Imdex is well-positioned for long-term growth as it is in the early stages of launching the industry's best suite of new and improved products.

Motley Fool contributor Tristan Harrison has positions in L1 Long Short Fund. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Imdex. The Motley Fool Australia has positions in and has recommended Imdex. 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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