I’m listening to Warren Buffett and buying cheap ASX shares

The Australian share market may have hit a record high this month, but the gains have not been evenly spread.

Banks and miners have done much of the heavy lifting. Outside those sectors, a number of high-quality ASX shares are still well below their previous peaks. And that is where I think the opportunity may lie.

Warren Buffett has always made it clear that he is not interested in cheap stocks for the sake of it. He wants wonderful businesses at fair prices.

In my view, recent weakness in parts of the ASX has dragged some quality names lower than necessary. That does not make them guaranteed winners, but it may make the risk-reward more attractive than it has been in years.

Here are a few that stand out to me.

Goodman Group (ASX: GMG)

Goodman shares are down around 22% from their highs.

This is a global industrial property heavyweight with exposure to logistics, warehouses, and data-related infrastructure. It benefits from long-term structural trends such as ecommerce growth and supply chain modernisation.

I do not see Goodman as a cheap company in the traditional sense. It rarely trades at bargain valuations. But when sentiment cools and the share price pulls back meaningfully, I think it can offer a fair entry point into a high-quality platform with strong development capabilities and global reach.

That feels far more Buffett-like than chasing a low-quality stock just because its price-to-earnings (PE) ratio is low.

WiseTech Global Ltd (ASX: WTC)

WiseTech has fallen roughly 63% from its high. That is a dramatic re-rating.

The company still operates a mission-critical global logistics software platform. Its products are deeply embedded in customer workflows, and switching costs are significant. Those characteristics resemble the kind of durable competitive advantage Buffett often talks about.

Of course, high-growth software shares can be volatile, and expectations were stretched at the top. But after such a sharp decline, I think the conversation shifts from overhyped to whether the market is now too pessimistic.

If the business continues to execute and grow earnings over time, the current weakness could prove to be a compelling buying opportunity.

Treasury Wine Estates Ltd (ASX: TWE)

Treasury Wine shares are down almost 60% from their high.

This is a globally recognised wine business with premium brands and international distribution. It has faced challenges, including shifting demand and margin pressures, but I believe the underlying asset base still has value.

Buffett would likely ask whether the long-term earnings power of the business is impaired, or whether sentiment has simply overshot to the downside. If earnings can stabilise and grow from here, buying after such a large pullback could prove rewarding.

CSL Ltd (ASX: CSL)

CSL shares are down around 47% from their high.

This is one of Australia’s highest-quality global healthcare businesses. It has a long track record of innovation, strong margins, and disciplined capital allocation.

The recent de-rating reflects softer periods of performance and higher expectations resetting. But if you believe CSL can return to steady earnings growth over the coming years, then I think the lower share price may represent one of the best entry points that we have seen in some time.

Again, this is much closer to Buffett’s philosophy than simply buying something because it looks statistically cheap.

Foolish takeaway

The ASX may be at record highs, but that does not mean every share is expensive.

Banks and miners have led the charge. Meanwhile, several high-quality growth names are still 20% to 60% below their previous peaks. In my view, that is where investors should be looking.

I am not saying these are guaranteed buys. But if I am going to follow Buffett’s logic, I would rather buy strong businesses when sentiment is weak than chase sectors that are already at record valuations.

The post I’m listening to Warren Buffett and buying cheap ASX shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in CSL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, Treasury Wine Estates, and WiseTech Global. The Motley Fool Australia has positions in and has recommended Treasury Wine Estates and WiseTech Global. The Motley Fool Australia has recommended CSL and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.