2 ASX 200 shares this fund manager rates as really cheap buys

These 2 ASX shares could be too good to ignore.

| More on:
Smiling couple looking at a phone at a bargain opportunity.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Fund manager L1 Capital recently held an investor presentation and highlighted two S&P/ASX 200 Index (ASX: XJO) shares.

Some investors may choose to focus on the biggest companies like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and CSL Ltd (ASX: CSL), but there may be other opportunities further down the market capitalisation list.

Indeed, smaller companies may be less monitored by analysts and investors, creating conditions for those ASX 200 shares to be undervalued.

Let's dive into two companies L1 thinks are "low P/E stocks with enormous cash generation".

BlueScope Steel Limited (ASX: BSL)

BlueScope is a steel producer operating in Asia Pacific and North America.

The fund manager described the company as resilient and diversified, with "commoditised" earnings streams protected by a downstream branded business (such as Colorbond and Truecore).

L1 thinks US steel markets are "structurally attractive", and BlueScope has a strong industry position. The fund manager said BlueScope's balance sheet has low levels of debt and that the company has the ability to use cash flow generated for increased shareholder payouts or acquisitions.

The business has a "track record" of shareholder returns and investments that deliver a strong return on invested capital (ROIC).

L1 said the ASX 200 share is trading at a significant discount to its North American steel peers which are trading at between six to eight times earnings before interest, tax, depreciation and amortisation (EBITDA). BlueScope, on the other hand, is trading at an "undemanding" valuation of around 4.5 times EBITDA.

The BlueScope Steel share price is almost 10% lower than where it started the year, as shown on the chart below.

AGL Energy Limited (ASX: AGL)

The other ASX 200 share that L1 pointed out was AGL. It's the lowest-cost baseload generator in the key markets of Victoria and New South Wales. The company has "regulated assets with significant barriers to entry", according to the fund manager.

L1 believes electricity demand is set to grow substantially over the medium term due to data centres, electric vehicles and AI.

The investment team suggests the business can generate strong free cash flow in the medium term, which can "fund high dividends and substantial investment" into the energy transition in areas like batteries, and make solid returns. The fund manager also said the management team at AGL is "disciplined".

In terms of the valuation, L1 said the ASX energy share is valued at an enterprise value to EBITDA ratio of 4.5 times, which is "well below" its historical range of around six times.

The AGL share price has risen around 8% since the start of 2024, as we can see on the chart below.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Cheap Shares

Person with a handful of Australian dollar notes, symbolising dividends.
Cheap Shares

2 cash-rich ASX companies to buy now

Here are two ASX-listed shares boasting substantial cash reserves.

Read more »

A woman scratches her head, is this a no-brainer?
Cheap Shares

Are Woolworths shares a no-brainer buy?

Analysts see huge value in this retail giant's shares at current levels.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Cheap Shares

'Undervalued': 3 ASX 300 shares to buy following significant share price falls

Experts have named these ASX shares as buys.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Cheap Shares

2 cheap ASX dividend shares I'd buy now for future income

These stocks look good value to me and pay good yields.

Read more »

Two excited woman pointing out a bargain opportunity on a laptop.
Cheap Shares

How I'd try to turn an empty portfolio into $300k by buying cheap ASX shares, starting now

If I was looking for cheap ASX shares today, here's what I'd buy.

Read more »

Couple looking at their phone surprised, symbolising a bargain buy.
Cheap Shares

3 ASX shares that look way too cheap to ignore right now

Analysts think these shares could be in the bargain bin right now.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Cheap Shares

2 cheap ASX shares to add to your portfolio before they get expensive

Analysts think these shares are undervalued at current levels.

Read more »

A woman sets flowers on a side table in a beautifully furnished bedroom.
Cheap Shares

2 cheap ASX shares that offer at least 9% dividend yields

I'd look at these stocks for a cheap valuation and big passive income.

Read more »