Certain S&P/ASX 300 Index (ASX: XKO) share sectors have had an excellent 2024. Hence, this could be a good time to look at stocks that aren't from the high-performing industries of ASX tech shares and ASX bank shares.
We're going to look at where one expert sees value.
The fund manager L1 Capital likes to look at companies from unloved sectors and companies with relatively low price-earnings (P/E) ratios.
It's possible to make good returns from cyclical and industrial companies at the right time/price. So, let's look at where there could be opportunities, based on the latest update from L1 Capital.
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Nexgen Energy (Canada) CDI (ASX: NXG)
Nexgen is an ASX mining share which is preparing to develop the world's largest (known) untapped uranium deposit called Arrow, which is located in the Saskatchewan province in Canada.
L1 noted in its update that Nexgen Energy shares rose 16% in November thanks to the announcement that the ASX 300 share had successfully completed the final federal technical review which represented a "major de-risking milestone".
The next step is entering the final stage of federal approval, with a commission hearing expected in the first half of 2025. After that, Nexgen will be able to start full-scale project construction, with stage approvals having already been granted.
L1 explained why this project is so compelling:
This would be a major, new, strategic Western source to address the looming uranium market deficit. Arrow has the potential to generate more than C$2b of cash flow annually, once developed – a highly attractive proposition given NexGen's current market cap of ~C$6.5b.
Qantas Airways Ltd (ASX: QAN)
The Qantas share price continued its strong performance in November, rising by 9%. L1 noted that "robust and favourable trading conditions persisted".
L1 suggests the strong performance of the airline, including a 50% rise in four months, reflects strong earnings, management and board changes, as well as the removal of many pain points for customers.
The fund manager noted at the Qantas AGM in late October, the airline upgraded its expectations for domestic yields, amid strong travel demand and ongoing improvement in corporate travel.
L1's investment team also pointed out this ASX 300 share is benefiting from lower fuel prices in FY25, while the loyalty division "remains on track for double-digit earnings growth". The fund manager believes Qantas can continue providing "robust shareholder returns", including a return to fully franked dividends for the first half of FY25.
L1 explained why it's still bullish on the business:
We believe Qantas remains very well placed over the medium term given it has Australia's best loyalty business (which is expected to double earnings over the next 5-7 years) and a raft of brand new, more fuel-efficient aircraft to be delivered, along with Project Sunrise, which will enable direct flights from Melbourne/Sydney to London and New York from 2026.
Despite the large share price rally, Qantas trades on a FY25 P/E of only 8.3x. We believe this low earnings multiple does not reflect its leading industry position, structural medium-term growth in travel demand and a high growth, capital-light loyalty division, which remains underappreciated by the market.
Mineral Resources Ltd (ASX: MIN)
Mineral Resources shares have suffered in recent times amid governance issues. The business is undergoing a leadership change, with the CEO expected to be replaced over the next 12 to 18 months.
It has been reported that talisman Chris Ellison, for example, used company resources for personal matters, among various other problems that Ellison caused with his dealings.
This has been a painful time for shareholders, with the Mineral Resources share price down 35% since October 2024.
However, the company continues to operate its mining projects and provide mining services. L1 sees an opportunity at this lower price, stating:
…we continue to believe that each of Mineral Resources' core segments should see material improvement from current levels over the medium term. Its Onslow Iron Ore project is commencing ramp-up towards positive cash flow contribution from mid-FY25. The mining services business should see a positive step-change in volumes and earnings over the coming 18 months. Finally, the lithium business has significant volume optionality to produce over 1,000kt of spodumene concentrate when market conditions improve.
