Economists say the impacts of interest rate rises take time to cascade through the economy.
That means that, unfortunately, the worst economic times are still ahead of Australia, which has copped 12 rate hikes over the last 14 months.
The good news, though, is that there are ASX shares out there going for cheap amid the current pessimism.
By buying into these, the idea is that as the economic cycle turns back to recovery, earnings for these companies will be lifted from increased demand.
Let's check out a couple of buy tips based on that strategy:
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Trading very cheap while operating famous brands
Retail Food Group Ltd (ASX: RFG), which operates ubiquitous food franchises such as Michel's Patisserie and Gloria Jeans Coffee, has seen its share price sink 36.7% so far this year.
In a memo to clients, Glenmore Asset Management portfolio manager Robert Gregory noted how its update to the market last month did it no favours.
"RFG issued a much awaited trading update stating that whilst FY23 earnings guidance for EBITDA to be in the range of $26 million to $29 million would be maintained, it is now likely to fall at the lower end — previous guidance was the upper end."
The company cited "deterioration in trading conditions" for the retail sector after the steep interest rate rises and "cost of living pressures on the Australian consumer".
"Year-to-date domestic network sales grew +8.5% in FY23 vs pcp, however in the second half, domestic network sales growth moderated to +2.2% in the 21-week period."
However, the depressed conditions simply mean Retail Food Group is closer to bouncing back, as far as Gregory is concerned.
"Whilst the next 6 to 12 months of trading will continue to be challenging, RFG trades on a very low PE multiple of ~7x, and holds an attractive portfolio of brands across [the] food and beverage sector."
Contract wins galore
Meanwhile, the analysts at Celeste Funds Management took notice of how mining contractor NRW Holdings Limited (ASX: NWH) is seeing its work pick up last month.
"NRW Holdings continued a run of new work award announcements, with a letter of intent signed with Allkem Ltd (ASX: AKE) to provide mining services work at the Mt Cattlin lithium mine in Western Australia."
The 36-month, $332 million contract gave hope to investors that its previous issues are starting to disappear.
"Investors gained increased comfort that the delays in new contract awards — highlighted by management at the 1H23 result in February — are now being resolved and the enormous pipeline of work across the industry can begin working towards being realised."
As the resources industry picks up from an improving global economy, including major customer China, NRW shares have much upside potential from here.
"We remain positive on NRW Holdings and expect further new contract wins to be announced over the months ahead."
