The gloomy economic outlook means there are some terrific bargains in the S&P/ASX 200 Index (ASX: XJO) right now.
But which ones are true value buys and which ones are traps?
To help resolve this dilemma, there is no better testimony than seeing the shares that a professional stock picker actually buys.
Here are two such examples that the team at Airlie Funds Management bought recently:
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'A strong 3-year outlook'
All the pessimism about Australian households burdened with massive mortgage repayments has really beaten down consumer discretionary stocks.
As such, the Premier Investments Limited (ASX: PMV) share price has plunged more than 23% since March.
With a long-term horizon, the Airlie team swooped.
"We believe that consumer discretionary companies are in for a tough time," it stated in a memo to clients.
"However, picking the lows is difficult and at current levels, we think Premier has a strong three-year outlook driven by continued global rollout of the Smiggle brand and the launch of Peter Alexander on the world stage."
As well as those brands, the company also owns other ubiquitous chains like Just Jeans, Jay Jays and Portmans.
Funnily enough, the fashion conglomerate is also the biggest shareholder of household appliances maker Breville Group Ltd (ASX: BRG).
"With a strong net cash balance sheet, we consider Premier looks an attractive opportunity."
A virtual monopoly
Sleep breathing device maker Resmed CDI (ASX: RMD) is the other ASX 200 stock Airlie team has bought.
The share price is still in a significant dip, being more than 8.2% cheaper since the start of May.
"We believe the current setup looks compelling," read the Airlie memo.
"Sleep apnea is a cracking market, with demand growing 7% to 8% per annum."
That market has historically been a duopoly between ResMed and Koninklijke Philips NV (AMS: PHIA).
But ResMed has had all the new customers to itself in recent times.
"In the last two years, we estimate ResMed has gained an additional 20% share of the market as Philips has suffered through a recall of some of its ventilators and sleep apnea-related devices," Airlie's memo read.
"We believe a consent decree from the US Food and Drug Administration for Philips' devices will make ResMed's market share gains stickier and potentially compound ResMed's current innovation/technology gap as compared against Philips."
This all points to double-digit earnings growth for ResMed in the medium term, the team added, as well as "strong cash flow generation with little capex, and a balance sheet with very little gearing".
Even after the current dive, the Airlie team admitted there is a slight risk that the healthcare stock remains on the expensive side after a 124% gain over the past five years.
"On 31x FY24 PE [ratio], the stock is hardly cheap," read the memo.
"However, if our cash flow forecasts prove correct, we believe the share price could exceed $40."
That's still a 21% upside from current levels.
