The fund manager Blackwattle has revealed two ASX retail shares that are exciting and have good long-term growth potential.
The Blackwattle Large Cap Quality Fund aims to outperform the S&P/ASX 200 Accumulation Index (ASX: XJOA) over the long-term. It's looking for quality companies at low or reasonable valuations.
Two core positions
Two of the ASX shares that the fund manager highlighted in a recent update were ARB Corporation Ltd (ASX: ARB) and Premier Investments Limited (ASX: PMV).
ARB is a business that sells "well-engineered, durable equipment that would meet the vigorous demands of 4WD owners". It's Australia's largest manufacturer and distributor of 4×4 accessories, with a presence in over 100 countries.
Premier Investments owns several retail brands, including Just Jeans, Jay Jays, Jacqui E, Portmans, Dotti, Peter Alexander, and Smiggle. It also has stakes in Breville Group Ltd (ASX: BRG) and Myer Holdings Ltd (ASX: MYR).
Blackwattle said both of these ASX shares are "very high-quality retailers" that are led by "excellent stewards aligned with high levels of ownership."
Why own these ASX retail shares?
Blackwattle said its thesis for owning them is underpinned by both ARB and Premier Investments' "differentiated offerings and strong global presence" which have taken many years to build.
The fund manager pointed out that Premier Investments has "hidden growth brands", namely Smiggle and Peter Alexander. Blackwattle suggested Premier Investments is undervalued because the market is applying a 'conglomerate discount' to the ASX share, placing the Premier Investments share price at a "low" price/earnings (P/E) ratio of 13 times.
The investment team suggested the ongoing strategic review might "unveil these brands' growth prospects," potentially leading to a higher valuation, as we see with Lovisa Holdings Ltd (ASX: LOV) and Breville Group.
What's the outlook for the ASX share market?
Blackwattle said that looking ahead, increasing takeover activity bodes well for investors focusing on the intrinsic quality of a business and prevailing valuations.
The investment team then said the heightened market volatility observed during the ASX reporting season "underscores the influence of fast money in the markets".
The fund manager suggested that for investors with a longer-term view of fundamental value, the volatility "presents an opportunity to acquire outstanding companies at discounted values."
However, fast-moving share prices of ASX shares that lack a sustainable competitive edge are, in Blackwattle's opinion, prone to result in capital losses "when the market aligns with reality."
