ASX value shares could be a great area of the market to hunt for opportunities because of how cheap they are and what could happen next.
There are a number of ways to judge whether a business is trading below its fair value. Is it trading cheaper than what investors think it's worth?
Every investor may value a business differently, but there is a level where a business seems cheap and a level where it's expensive.
There are two areas of investment I want to point to.
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Real estate investment trusts
We are still in the era of high interest rates, even if Australian inflation has reduced to under 3%. The Reserve Bank of Australia (RBA) cash rate is 4.1%, though it's possible the interest rate could be reduced by another 25 basis points (0.25%) this month.
Real estate investment trusts (REITs) could be some of the most attractive ASX value shares. They have been some of the hardest hit because high interest rates have hurt rental profitability due to higher financing costs. The value of shares reduced because of the higher rates headwind. As Warren Buffett once explained:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.
There are plenty of REITs that are trading significantly below their reported net asset value (NAV) – this includes the value of the properties, the loans and all other assets and liabilities. I think interest rate cuts could help REIT unit (share) prices move towards their NAV and close that share price discount.
Some of the REITs that are trading below their NAVs include Rural Funds Group (ASX: RFF), Centuria Industrial REIT (ASX: CIP), Charter Hall Long WALE REIT (ASX: CLW), Dexus Industria REIT (ASX: DXI) and Charter Hall Social Infrastructure REIT (ASX: CQE).
The business Brickworks Ltd (ASX: BKW) also has significant (property) assets and I think the ASX value share is trading significantly below its underlying asset value.
VanEck Morningstar Wide Moat ETF(ASX: MOAT)
If some investors don't want to try to figure out which shares are trading at a discount to their fair value, there are some exchange-traded funds (ETFs) out there that invest with that method.
The MOAT ETF invests in US businesses that have strong competitive advantages, or economic moats, that are expected to endure for at least 20 years.
But the fund only invests in those businesses when the analysts at Morningstar believe that the business is trading at an attractive price relative to Morningstar's estimate of fair value.
I'm calling this a top ASX value share because Aussies can buy it on the ASX.
Past performance is not a guarantee of future returns, but it returned an average of 15% per year between inception in June 2015 and 31 March 2025.
