2 cheap ASX 200 shares down over 30% this fundie just bought

There's still value opportunities in this frothy market.

| 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

In a hot-running market, investors might struggle to find cheap ASX 200 shares with significant upside potential.

One fund manager has identified a couple of stocks that it sees are trading at reasonable prices.

Domino's Pizza Enterprises Ltd (ASX: DMP) and Fletcher Building Ltd (ASX: FBU) are the picks, with both stocks down more than 30% this year to date.

Shares in pizza chain Domino's are more than 39% in the red, whereas Fletcher Building is down nearly 35%. Both have faced their share of struggles this year.

Despite the sell-off, the team at Lazard Asset Management see potential in these companies, believing in their long-term recovery and value. Let's take a closer look.

Fundie eyes cheap ASX 200 shares

What's helpful is knowing that cheap ASX 200 shares aren't just beaten-down stocks. A judgment on the underlying business is also needed.

Lazard's definition explains it well: "the cheapest and riskless stocks". Risk in this instance being poor quality businesses.

Still, Domino's and Fletcher Building are no strangers to recent struggles. Domino's has grappled with issues in Europe, Japan, and even Australia due to high inflation, while Fletcher Building is fighting a downturn in New Zealand's housing market.

Both stocks have been heavily sold this year as a result.

But Lazard portfolio manager Robert Osborn believes these challenges could represent opportunities.

Osborn recently added both companies to Lazard's Select Australian fund, according to The Australian Financial Review.

Lazard's selective, value-focused approach emphasises companies with strong fundamentals, even if it means weathering some near-term market pessimism.

Domino's and Fletcher both fit this mould, the firm says, despite their 2024 performance.

They probably feel like the worst names, and it's yet to be proven that they'll make us money, but we're buying good companies at reasonable prices

Fletcher Building recently took on a $NZ700 million equity raise to reduce its debt load.

This fundraising effort, paired with what Lazard sees as a potential rebound in the New Zealand housing market, made Fletcher an attractive buy for the fund. Osborn explains:

The market hasn't yet adjusted to the fact that Fletcher's earnings are likely to rise over the next few years as housing activity picks up again.

It's worth noting that this particular capital raise provided an opportunity for Lazard to buy more shares at a discount.

And the fund looks to be against the market here with this cheap ASX 200 share. The New Zealand House Price Index, which measures house price movement throughout the nation, has shown a declining trend from highs of 3.9% in May to just 0.3% in September.

What about Domino's?

Domino's shares were in a clear downtrend from January to September, with the stock repricing from $58 to $29 during that time.

It has since climbed to more than $35 apiece at the time of writing.

The global pizza franchise has faced challenges on the operations side – particularly overseas – but Osborn sees promising signs of a turnaround.

He sees the above headwinds as management-related, but he thinks the leadership team is on it and making the right changes.

And he has a point. Whilst inflation has fleeced many in hospitality and quick-service restaurants, the thought of convenient pizza delivery suddenly disappearing seems unrealistic.

Osborn's observation is fairly simple here, noting that "If they don't make money, no one will want to open a new store". Fair point.

But don't expect bombastic growth, he says. The fund manager predicts a more "sensible" approach moving forward.

This conservative growth outlook aligns with Lazard's preference for value over hype, especially as the pizza giant's rivals – such as Guzman Y Gomez Ltd (ASX: GYG) – are pushing more aggressive, high-stakes expansion strategies that Osborn feels are overvalued.

Goldman Sachs recently rated the stock a buy as well, with a $40 price target.

Foolish takeout

Lazard sees Domino's and Fletcher Building as potentially cheap ASX 200 shares. The fund manager believes the market is done punishing both. This is backed by a turnaround in the underlying businesses.

Time will tell if the firm is correct or not. Domino's is down 28% in the past year, whereas Fletcher has slipped 26%.

Motley Fool contributor Zach Bristow 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 Domino's Pizza Enterprises and Goldman Sachs Group. The Motley Fool Australia has recommended Domino's Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Value Investing

Two excited woman pointing out a bargain opportunity on a laptop.
Value Investing

How to find cheap ASX value shares in the current market

Where is the value in such a hot market?

Read more »

A boy leaps and flaps his arms as he tries to fly with some birds on the shoreline of the beach.
Value Investing

The ASX is soaring to new heights, but Aussie investors can still seize profits

There are still ways to invest prudently when the markets are at record highs...

Read more »

Woman with spyglass looking toward ocean at sunset.
Value Investing

How to find ASX value shares when the market's at an all-time high

Finding value in a frothy market can be a challenge.

Read more »

A young male builder with his arms crossed leans against a brick wall and smiles at the camera as the Brickworks share price climbs today
Value Investing

Looking for value shares? This ASX 200 gem looks like a no-brainer buy to me!

Is this dividend favourite shaping up as an ASX value gem?

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Value Investing

Down 11% this year, is this ASX bargain stock too cheap to ignore?

Does this tick the value investors' checklist?

Read more »

Three sky divers 'falling with style'.
Value Investing

Down more than 10% in 7 months, I'm backing these 3 ASX shares to reverse that — and then some! — by 2025

These shares look oversold to me.

Read more »

Two excited woman pointing out a bargain opportunity on a laptop.
Value Investing

3 ASX value stocks to buy right now

I’m optimistic about these stocks that look cheap to me.

Read more »

a small boy dressed in a bow tie and britches looks up from a pile of books with a book laid in front of him on a desk and an abacus on the other side, as though he is an accountant scouring books of figures.
Value Investing

3 ASX shares trading below their book values

Looking for undervalued stocks? Price-to-book values may be your guide.

Read more »