With the S&PASX 200 index (ASX: XJO) up more than 12% in the past year, investors might think it's difficult to find a cheap ASX stock floating around.
One way to define 'cheap' would be those 'unloved' stocks, the ones that have been heavily sold over a period of time.
Seek Ltd (ASX: SEK), which is Australia's largest online job classifieds business, might be one such name.
The stock is down almost 12% in the past year, in direct contrast with the broader market.
But while Seek shares might have fallen out of favour with many investors, one fund manager believes the company might be at a "turning point". Let's see.
2025: The year for Seek?
Seek shares were heavily sold towards the end of 2024, sliding from highs of $27.11 in late November to finish the year at $22.57 apiece. That's a 16% decline, arguably putting it in the territory of cheap ASX stocks.
Anyone owning the stock during that period would have felt the clutch of such volatility.
One of those was the Blackwattle Mid Cap Quality Fund. Seek was "the largest negative contributor to performance" for the fund, wiping 14% in value during December alone, according to its latest fund letter.
It says a key driver of the selloff was that tech stocks "came under pressure" last month.
This hasn't deterred Blackwattle's investment team, however, with the fund noting a set of improvements in Seek's fundamentals. According to the letter:
At the AGM in late November, SEK reiterated revenue guidance for FY25 and slightly reduced their cost guidance range. SEK has been a significant underperformer in 2024 compared to technology peers on the back of cyclical volume headwinds (reversing COVID gains) and disappointing cost control. We see 2025 as a potential turning point for SEK.
The November AGM update is the first in a few years that has not resulted in an earnings downgrade, and this increases our conviction that SEK management have finally shifted to improved cost control and shareholder return focus.
Over the next couple of years, SEK has the potential to improve earnings with strong pricing power, cost control and listing volume growth (cycling 2 years of negative 15-20% listing volume CAGR).
Aside from the growth potential, Blackwattle sees Seek as a cheap ASX stock after the price action of late 2024.
SEK also has the ability to improve the capital structure with a potential partial monetization of the SEEK Growth Fund in 2026.
We see strong upside for SEK as an 'improving quality' business with significant earnings and capital optionality combined with a materially cheaper valuation multiple to peers.
For those after cheap ASX stocks, Blackwattle's comments are an insight into the thinking behind these fund manager calls.
Is Seek really a cheap ASX stock?
Meanwhile, analysts also see Seek as a cheap ASX stock. Firstly, the consensus rating average is a buy, according to CommSec.
Whereas the consensus price target is $26.50 apiece, as per broker data obtained from Tradingview.
That's an 18% increase at the time of writing, should that valuation prove correct.
Seek also pays dividends, and the consensus estimate is for the company to grow its dividend by 5-6% over the next two years, hitting 39 cents by FY26.
At the current share price, this totals a yield of 1.7%, bringing the total potential return to about 20%.
Warren Buffett, one of the world's most successful investors, applies a 'margin of safety' principle to his investment process.
A value investor after cheap ASX stocks would only buy names trading at a 20% (or more) discount to the estimated price target using this method (Buffett estimates 'intrinsic value' instead).
Under these terms, Seek might qualify as a cheap ASX stock. But time will tell what happens next.
Foolish takeout
Seek was heavily sold towards the end of 2024, but Blackwattle reckons it's a new year for the job classifieds company.
It sees Seek as a cheap ASX stock with growth potential this year.
Now, it's up to the company's management to execute its strategy and see this reflected in the stock price.
