Reporting season can be a crazy time.
The market becomes very reactionary to the numbers just released, which is understandable. But such knee-jerk responses are antithetical to long-term investing.
This is why some bargains could be bought if you can keep your head and stay focused on the long-term picture.
Wilsons equity strategist Rob Crookston has spotted two S&P/ASX 200 Index (ASX: XJO) shares that are exactly in this situation:
Market is worried for nothing
There are two concerns that the market is anxious about, but Crookston argues neither are long-term headwinds.
First is the revelation of a slower-than-expected supply build of its AS11 sleep apnoea device.
"Ultimately, the slight delay to AS11 supply becoming unconstrained (relative to market expectations) means little competitively or strategically, apart from depriving investors of an earnings surprise 'sugar hit'; that could have boosted stock performance near-term," Crookston said in a Wilsons memo to clients.
"Most importantly, our medium and long-term view remains intact with RedMed still well placed to carve out permanent CPAP market share gains from the Koninklijke Philips NV (AMS: PHIA) recall, while gross margins should improve over time as AS11 supply builds."
The second threat is new fad weight loss drugs, such as Ozempic.
The idea is that if consumers find it easier to lose weight, there will be fewer people who experience sleep apnoea.
Crookston said his team is "sanguine" about this risk to ResMed.
"Diagnosis rates of obstructive sleep apnea in the US are estimated at less than 20% and ~35% for moderate-severe patients.
"Therefore, there is still a long runway for growth in the CPAP market, and even modest improvements in diagnosis rates could effectively cancel out the potential top-line effects of weight loss drugs on CPAP demand."
The housing market will boom soon
Crookston noted that, despite rising interest rates, the construction materials provider has fared better in its North American business than anticipated.
"The company has shown resilience with impressive margins, thanks to both price/mix adjustments, optimised operational spending, and fall in the price of freight."
The company is now poised to cash in.
"James Hardie is well positioned even with a backdrop of macro headwinds and is expected to benefit from a cyclical recovery in US housing over the next 12 to 24 months."
"The investment focus remains on growth in the fibre cement category, US housing undersupply since the GFC, and the ageing of US housing stock."
Crookston's team is therefore sticking with its "positive long-term outlook" for James Hardie, and the shares are cheap to boot.
"The stock's valuation is seen as compelling relative to growth potential, trading at an FY24 PE of ~20x."