There is no doubt inflation and interest rates have heavily occupied the minds of investors over the past 18 months.
When the market overly focuses on such macroeconomic worries, good businesses get lumped in with the bad and they all suffer downgraded valuations.
DNR Capital chief investment officer Jamie Nicol has pointed out how there are now absolute bargains in the S&P/ASX 200 Index (ASX: XJO) because of this anomaly.
"What we are seeing in terms of opportunities is that uncertainty is driving some good quality companies to trade at discounts," Nicol said in a DNR video blog post.
"This environment has provided a rare opportunity to invest in good quality businesses that perhaps are getting disrupted through [a] hiccup in earnings, change in CEO, or a range of events… Investors can pick up some of those businesses at really good discounts."
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'Very good earnings per share growth'
As a jobs classifieds platform, investor sentiment for Seek Ltd (ASX: SEK) has waned.
"Seek is a great business and market leader across Australia, with its earnings tied to the economy due to job numbers," said Nicol.
"This uncertainty means investors are gravitating away from this company."
Therefore, DNR Capital reckons now is a great time to pick up the tech stock at a very "reasonable" price for those patient enough to stick through the cycle.
"We believe Seek has a long-term opportunity to continue to lift prices and continue to expand into new markets," he said.
"We think that will drive very good earnings per share growth on a through-the-cycle view."
Seek's immediate prosperity could depend on whether Australia experiences a "hard landing" or "soft landing" after the steep rate rises.
"Clearly interest rates are on the way up and ordinarily we would expect the economy to slow in response to that," Nicol said.
"We have seen some evidence of slowing but the economy has been resilient to date. And that remains a key area of debate."
'Longer term trajectory still looks very good'
Nicol nominates CSL Limited (ASX: CSL) as a unique ASX 200 stock that's both defensive and disruptive.
He acknowledges the share price for the biotechnology giant has struggled in recent times.
"They've had a change of the CEO.
"They did have a downgrade to near term earnings which was all about the recovery and earnings post-COVID, and perhaps the recovery is taking a little bit longer than what they initially expected."
However, he has strong conviction that "the longer term trajectory still looks very good".
"We always like to buy in periods of uncertainty, particularly when we are unclear on what the macro framework looks like," said Nicol.
"We look for quality characteristics, good management, good businesses, good industry structure, competitive advantages, good ability to earn strong margins over the longer term because the market tends to gravitate back to those companies over time."
