Recent share market weakness has been very disappointing. However, this could prove to be a great buying opportunity for patient investors.
That's because cheap ASX shares could potentially benefit significantly from a prolonged share market recovery. Particularly if their current prices include substantial margins of safety, which may offer substantial room for capital growth in a rising market.
Historically, a strategy of investing in such companies has proven quite successful. Therefore, given the presence of many cheap ASX shares with strong market positions and solid financials, now might be an opportune moment to capitalise on their attractive prices.
Promising returns from cheap ASX shares
Purchasing any asset at a lower price is generally a wiser choice than acquiring it at a higher price. That's because the approach can potentially yield greater capital returns since the market may not have factored in the asset's long-term growth potential into its current valuation.
Take for example Idp Education Ltd (ASX: IEL) or Endeavour Group Ltd (ASX: EDV). Both ASX 200 shares have been sold off this year due to short-term concerns but remain leaders in their field. If the market becomes positive on them again, they could have the potential to outperform the broader stock market during a recovery.
Focus on high-quality companies
It is worth remembering that not all cheap ASX shares are going to rebound when the market recovers. Some are cheap for a reason. That's why it is important to focus on high-quality companies.
If you buy cheap ASX shares that are facing structural headwinds, they may not rise with the market. They could even go in the opposite direction. Whereas you have a greater chance of generating market-beating returns if you focus on buying out-of-favour ASX shares that have strong business models, sustainable competitive advantages, and positive long-term growth outlooks.
All in all, I would suggest investors don't get down when they see the market in the red again, get greedy instead.
