Buy these 2 ASX shares going for a 25% discount: Morgans

two ladies playing amongst clothes on a store racktwo ladies playing amongst clothes on a store rack

After a turbulent few months, there are plenty of ASX shares out there going for far cheaper now than when the year started.

But which ones have the best chance for future returns, as opposed to the stocks that are now value traps?

Morgans analyst Andrew Tang had a couple of examples in his monthly Best Ideas memo:

Demand that’s ‘resilient to economic cycles’

Gambling games provider Aristocrat Leisure Limited (ASX: ALL) is a recent addition to the Morgans Best Ideas list.

The company has enjoyed revenue growth of 17% per annum over the past five years, stated the Morgans memo. In the 2021 financial year, 80% of that revenue was recurring.

Rising interest rates and a slowdown in consumer spending will not worry it, according to Tang.

“Demand for its gaming machines and digital games is resilient to economic cycles,” he said.

“We expect Aristocrat to continue to take market share in all its product segments.”

The Aristocrat share price has plunged more than 25% year-to-date.

“The recent underperformance of the shares may have been a function of concern about Aristocrat’s exposure to Ukraine, although it has recently stated that 75% of its staff there have relocated to safer locations and there is no material impact on earnings.”

For Tang, the weakness in stock price merely presents an attractive buying opportunity.

“Aristocrat’s one-year forward P/E [price-to-earnings ratio] has derated to less than 20x from a high of 30x last September.”

He also loves the $3.3 billion of capital it has to fuel future growth.

“It has a stated ambition to build a meaningful presence in the rapidly growing online real money gaming segment, which we believe may be achieved both through organic investment and inorganic acquisitions.”

Plenty of Australians looking for better day jobs

Among the online classifieds players, Tang favours Seek Limited (ASX: SEK) as the best buy this month.

“We continue to see Seek as the one with the most relative upside, a view that’s based on the sustained listings growth we’ve seen over the period.”

Seek shares have dropped more than 29.3% so far this year, presenting a far cheaper entry point now.

According to Tang, the tailwinds that have seen job advertisements grow 35% and earnings before interest, tax, depreciation, and amortisation (EBITDA) head 16% north still remain.

“Subdued migration, candidate scarcity and the drive for greater employee flexibility,” he said.

“With businesses looking to grow headcount in the coming months and job mobility at historically high levels according to the RBA, we see these favourable operating conditions driving increased reliance on Seek’s products.”

The post Buy these 2 ASX shares going for a 25% discount: Morgans appeared first on The Motley Fool Australia.

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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 recommended SEEK Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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