The S&P/ASX 200 Index (ASX: XJO) share James Hardie Industries Plc (ASX: JHX) could be a seriously underrated opportunity amid ASX stock market volatility.
This opinion isn't coming from me, it's from one of Australia's leading fund managers – L1 Group Ltd (ASX: L1G). L1 has a long-term track record of outperforming the ASX 200 with its main listed investment company (LIC), L1 Long Short Fund Ltd (ASX: LSF).
In the three years to March 2026, the LIC delivered an average net return per year of 15.9%, outperforming its benchmark by an average of more than 6% per year.
L1 noted that the Iran War triggered a widespread fall in equity markets, with a major spike in market volatility. It's using this period of elevated volatility to identify "high quality companies that are now trading far below fair value, even assuming a less favourable macro outlook."
The fund manager notes that James Hardie is a leading siding (fibre cement), composite decking and building solutions company.
Let's take a look at why L1 recently increased its investment in James Hardie shares following a decline of more than 20% during March.
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The positives of the investing in the ASX 200 share
James Hardie is one of the building product businesses facing an uncertain situation related to inflation and costs. L1 said that the James Hardie share price (and peers) pulled back amid worries about higher interest rates and expectations of softening demand.
The fund manager said this contributed to a sector de-rating toward a bottom-of-the-cycle valuations. L1 believes there's a good prospect for returns from a "future normalisation of interest rates and/or improving consumer confidence".
It was suggested by the investment team that the business has no director impacts from the Iran war, with around 80% of sales generated in North America.
L1 suggested that James Hardie offers strong earnings growth potential with an earnings multiple in the mid-teens.
The fund manager said that the James Hardie share price is valued on a forward price/earnings (P/E) ratio of around 15x. That compares to a 10-year average of the forward P/E ratio being around 21x.
The 2022 period of high inflation saw the business trade at an even lower valuation, but the business has largely traded above that 15x P/E ratio since early 2023.
L1 isn't the only expert that likes James Hardie shares – the ASX 200 share is currently rated as a buy by 15 analysts, according to Commsec. It's one of the most liked businesses inside the ASX 200 right now.
