Finding undervalued ASX 200 shares can be a key way to generate impressive investment returns.
The trick is in deciding which shares to invest in.
I've had a look at some of the stocks that UBS' broking house has a buy recommendation on, which might be worth including in your portfolio.
In no particular order, here they are.
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Cleanaway Waste Management Ltd (ASX: CWY)
Cleanaway this week hosted an investor day, where it introduced the second phase of its Blueprint 2030 strategy, aimed at generating better returns for shareholders.
The company said it was aiming to expand margins by 260 basis points by optimising its branch network and leveraging the scale of its assets.
It was also looking to accelerate growth through investments in new technology, automation, data, and analytics.
UBS said in its note to clients this week that Cleanaway shares had been weak year to date, "which we see as largely attributable to Cleanaway's more recent history of inconsistent delivery against cash and earnings expectations, alongside heightened investor caution on Middle East related fuel cost inflation''.
UBS said on the positive side, the company flagged that free cash flow was at an inflection point, "and improvements will be supported by the completion of one-off restructuring costs and catch-up tax, reduced capital intensity (post network investment) and benefits from strategic initiatives''.
UBS has a price target of $3.05 on Cleanaway shares, compared with $2.44 currently.
Lynas Rare Earths Ltd (ASX: LYC)
Lynas reported its quarterly production and sales results this week, and UBS said that, despite a number of positive strategic updates throughout the quarter, the company missed consensus estimates for rare earths production.
UBS said sales revenue of $265 million "disappointed" and led it to downgrade the company's full-year earnings outlook.
The UBS team added:
Still, we remain positive the thematic and with the view that current operational hurdles will ultimately be overcome and expectation of further earnings growth from heavies and magnets, we remain buy rated.
UBS downgraded its price target for Lynas shares from $23.90 to $23.65, still comfortably higher than the current share price of $19.50.
Challenger Ltd (ASX: CGF)
Challenger also released a third-quarter update this week, in which it revealed that its funds under management had fallen by 10% to $104.5 billion.
Managing Director Nick Hamilton said the company had maintained "strong momentum" though, with sales in annuities performing well.
UBS said the update "revealed continued solid momentum across Life sales including longer-duration/higher margin annuity sales''.
The UBS team said Challenger's price-to-earnings (P/E) ratio was "undemanding" and "we continue to see compelling value and reiterate our Buy rating''.
UBS increased its price target on Challenger shares by 5 cents to $10.10, compared with the current share price of $8.39.
