ASX tech shares may get most of the attention for delivering strong returns, but there are other S&P/ASX 200 Index (ASX: XJO) stocks that could outperform the wider share market.
Fund manager L1 believes there are opportunities that have relatively low price/earnings (P/E) ratios and strong free cash flow yields.
L1 believes the Australian share market is now "fully valued", with several large cap stocks trading far above their historical multiples and global peers.
So, where are the opportunities? Let's look at what L1 thinks are opportunities.
Viva Energy Group Ltd (ASX: VEA)
L1 noted that the Viva Energy share price rose by 16% in June thanks to an improvement in both Australian retail fuel margins and global refining margins after a prolonged trough at the start of 2025. The second quarter of 2025 saw a higher average margin than 2024. Refining margins fell after the tariff announcement in April, but have recovered following the conflict in Iran.
The fund manager expects a significant improvement in the second half of 2025 for the ASX 200 stock. Specifically, it expects it to benefit from acquiring the remaining interest in the Liberty convenience business, substantial synergies from combining the Coles Express and OTR businesses, as well as its $50 million cost reduction program.
L1 believes OTR remains a proven, high-quality fuel and convenience retail offering. The fund manager explained:
There is significant earnings upside potential from rolling out OTR across the well-located, but historically under-invested Coles Express sites, with the initial set of conversions performing well. Management have retained their $500m EBITDA target for the Convenience & Mobility business (compared with $231m EBITDA in 2024).
James Hardie Industries plc (ASX: JHX)
L1 noted the James Hardie share price climbed 18% in June, recovering after a significant negative reaction after the announcement in March 2025 it was acquiring Azek, a US business. James Hardie itself is a major building products business across Australia, the US and Europe.
Azek shareholders approved the deal on 30 June and the acquisition completed soon after that.
The fund manager acknowledged that from a market outlook perspective, the environment continues to be "difficult and uncertain". Several large US homebuilders have noted weak demand trends during the spring selling season, with homebuyers struggling with high mortgage rates and declining affordability metrics. Tariffs are also impacting consumer confidence.
So, why is L1 positive on the ASX 200 stock? The fund manager explained:
We believe these impacts are transitory and will improve over the next 1-2 years as interest rates decline and consumer confidence improves. James Hardie, together with Azek, remains a secular share gainer in attractive industry verticals within the building products industry and we continue to see further upside from current share price levels.
