This could be an excellent time to consider overlooked ASX shares that the market is underestimating. Good investing is usually about finding assets that are underpriced for their long-term potential.
The ASX share market regularly experiences bull and bear markets, during which investors may be too optimistic or pessimistic.
Sometimes, the most compelling investments could be the most unloved ones.
At times like this, I like to refer back to several excellent pearls of wisdom from legendary investor Warren Buffett. Buffett's ability to make the right investments at the right time has helped Berkshire Hathaway become one of the world's largest companies.
Warren Buffett's wise advice
In 2001, Buffett compared beaten-up stocks to hamburgers:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
One of Buffett's most quoted pieces of advice could be helpful to keep in mind:
Be fearful when others are greedy, and be greedy when others are fearful.
This could be applicable to beaten-up stocks and sectors.
Which ASX shares are overlooked?
Each investor may have a different opinion on what ASX shares are being undervalued.
I think it'd be fair to judge ASX bank shares, like Commonwealth Bank of Australia (ASX: CBA), as being fully priced at close to 52-week highs. Plenty of ASX tech shares, like WiseTech Global Ltd (ASX: WTC) and REA Group Limited (ASX: REA), are also close to 52-week highs.
In terms of people being fearful and avoiding discounted hamburgers, I'd suggest ASX retail shares could be a fruitful place to look for contrarian investing regarding overlooked ASX shares. Households are struggling amid a high cost of living, but I don't believe the difficult retailing conditions will last forever. A recovery by 2026 could boost share prices of retailers.
For example, the Accent Group Ltd (ASX: AX1) share price is down 18% since its 2024 peak in February and it's down around 25% from April 2023, as shown on the chart below. The shoe retailer is responsible for various shoe brands in Australia, including The Athlete's Foot, Skechers, Vans and Ugg. I think its earnings growth could bounce back within a couple of years, particularly if it keeps growing its store network in the medium term.
Another example of a compelling overlooked ASX share may be homewares and furniture retailer Adairs Ltd (ASX: ADH). The Adairs share price has fallen 36% since March 2024 and has fallen 65% since June 2021. I think revenue and profit will be challenged in the short term. Still, profitability could recover noticeably by FY26 if economic conditions improve (such as the start of interest rate reductions to a more neutral level). The ASX retail share is working on upsizing some Adairs stores (making them significantly more profitable) and growing its Focus on Furniture store network.
Other compelling, currently somewhat unpopular ASX shares to consider could be AGL Energy Ltd (ASX: AGL) and Collins Foods Ltd (ASX: CKF), which I covered here and here.
