2 beaten-up ASX shares tipped to rebound in 2022

two cute doges, one a fluffy oodle type and the other a scruffy jack russell type, peer out from under a blanket as though they are in disgrace.

There is a famous investment theory called “Dogs of the Dow” from a 1991 book titled Beating The Dow.

This system advocates buying up the worst-performing stocks from the past calendar year, with the contrarian belief that they must be due for a recovery over the next 12 months.

Atlas Funds Management chief investment officer Hugh Dive said there’s a reason why this approach works.

“Institutional fund managers often report their portfolios’ contents to asset consultants as part of their annual reviews,” he posted on Livewire.

“This process incentivises fund managers to sell the ‘dogs’ in their portfolio towards the end of the year as part of ‘window dressing’ their portfolio before being evaluated.”

Because of this, retail investors actually have an advantage over the professionals.

“Their lack of scrutiny from asset consultants allows them the flexibility to pick up companies whose share prices have been under pressure late in the year that could see a rebound when the selling pressure stops in January and February. 

“Furthermore, retail investors can afford to take a longer-term view on the investment merits of a particular company that may have hit a speed bump.”

Refining the philosophy further, Dive has picked out 2 particular ASX shares among 2021’s ‘dogs of the ASX’ that have the best rebound potential.

One takeover candidate and coal comeback

Construction company Lendlease Group (ASX: LLC) and explosives provider Orica Ltd (ASX: ORI) saw their shares plunge 16% and 8% respectively in 2021. And they’ve each fallen a further 3% or so in the first few days of this year.

Dive is picking these two businesses to see a strong revival in 2022.

He loves the takeover potential of LendLease with “an attractive $110 billion global development pipeline”.

“It currently trades on a cheap multiple,” Dive said.

“Additionally, LendLease is a more palatable and cleaner acquisition target since exiting its volatile engineering business.”

The fall in Orica shares was triggered by a collapse of thermal coal volumes from its mining clients.

“However, in 2022 the outlook for coal looks robust, particularly in light of major exporter Indonesia banning coal exports in January 2022,” said Dive.

“This move by the Indonesian government is being made to divert coal to domestic power producers and will be beneficial for Australian coal miners — and hence Orica.”

The post 2 beaten-up ASX shares tipped to rebound in 2022 appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

More reading

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3f9UtE1

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s