I screened the ASX for quality and value. These 5 shares stood out

For a long time, growth at a reasonable price, or GARP, was probably the investment style I was most naturally drawn to.

This meant finding ASX shares capable of growing earnings at attractive rates, but avoiding paying a price that assumes too much of that growth in advance.

I still like that approach. But these days, I prefer quality at a reasonable price, or QARP.

With GARP, growth tends to be the starting point. With QARP, I start with the quality of the business.

I want ASX shares with strong competitive positions, attractive economics, healthy balance sheets, good cash generation, and the ability to keep reinvesting for years. Only then do I ask whether the valuation leaves enough room for an attractive return.

Why the shift? Because growth can disappear quickly. A fast-growing company can slow or lose market share. A genuinely high-quality business has a better chance of handling setbacks and continuing to create value.

That does not mean valuation becomes less important. A wonderful business can still be a poor investment if its share price already assumes a near-perfect future.

So, I recently screened the ASX 200 looking for shares offering both quality and a valuation I believe can still support attractive long-term returns.

Five stood out.

CAR Group Limited (ASX: CAR)

The first is CAR Group. I think this ASX share is a very good example of what I mean by QARP.

It operates leading automotive marketplaces across Australia and several international markets, giving it strong local economics and a longer runway offshore.

One of its biggest strengths is its network effects. Buyers gravitate towards marketplaces with the most listings, while sellers want to advertise where the buyers already are. Once that position is established, it becomes difficult for a new competitor to recreate the same audience.

CAR Group can then use that position to improve monetisation, launch new products, and grow internationally without requiring the physical capital many traditional businesses need.

I also like that the investment case is no longer resting on Australia alone. Its businesses in the United States, Brazil, and South Korea give the group several avenues for expansion.

Weaker economic conditions could reduce vehicle activity. But I think the strength of the platform, its cash generation, and its international opportunity make CAR Group a compelling long-term investment option.

And despite making my final five, it was not the opportunity that stood out most from the screen.

The remaining four include ASX shares where I think the market may be underestimating the quality or recovery potential, as well as one name that I believe currently offers the best overall QARP setup of the group.

CSL Ltd (ASX: CSL)

CSL is probably the clearest example here of a high-quality business that has fallen out of favour.

The biotechnology giant has disappointed investors in recent years. Execution has not always matched expectations and margins have faced pressure.

But I think the key question is whether those issues have permanently damaged the underlying business.

The good news is that I don’t believe they have.

CSL Behring has enormous scale in plasma collection and the manufacture of therapies used to treat serious and often rare diseases. It also has decades of expertise and a global collection network that would be extremely difficult to replicate.

Demand for many of its therapies is relatively resilient.

A recovery may not be immediate, but at a touch over 17 times estimated FY 2029 earnings, I think the share price now reflects far more caution than it once did.

If management can improve execution and margins while underlying demand keeps growing, CSL could offer strong returns from here.

Goodman Group (ASX: GMG)

Goodman Group is another ASX share that I think deserves its reputation for quality.

It is often described as an industrial property group, but that does not really cover the full opportunity.

Goodman specialises in securing land, power, planning approvals, and development opportunities in locations where major customers want logistics and digital infrastructure.

That has become incredibly valuable as demand for data centres has accelerated.

Artificial intelligence (AI) and cloud computing require enormous amounts of computing capacity, which is creating demand for sites with access to power and major population centres.

Goodman’s footprint and development expertise give it an advantage, while its partnership model allows it to keep recycling capital into new opportunities.

Its shares rarely look cheap and expectations around data centres are already high. But I think recent share price weakness has created an attractive entry point.

REA Group Ltd (ASX: REA)

REA Group is another ASX share that oozes quality.

Its realestate.com.au platform has an exceptionally strong position in the Australian property market.

Buyers want to search where the largest number of properties are listed, while agents and vendors want to advertise where the buyers are. That creates a powerful network effect and makes the platform difficult to displace.

REA also benefits from attractive economics. Advertising a property can represent a small percentage of a transaction’s value, yet reaching the largest pool of buyers is highly important to the seller. That gives the company significant pricing power.

Listings will still rise and fall with the housing cycle. And with interest rates rising, the cycle is certainly going through a tough stretch.

But for a long-term investor, I think the bigger consideration is whether REA will still be central to how Australians search for property in another decade.

I believe it will. That is why, despite a valuation that is unlikely to look conventionally cheap, I still think REA can fit within a QARP framework.

ResMed Inc (ASX: RMD)

The final ASX share is ResMed.

Of the five, I think this one currently offers the strongest combination of quality, valuation, and expected return.

ResMed is a global leader in devices, masks, and software used to treat sleep apnoea.

What I like most is that the company still has a huge market opportunity even after decades of growth. Sleep apnoea already affects a huge number of people, but the vast majority remain undiagnosed or untreated.

As diagnosis improves and treatment rates rise, ResMed stands to benefit from more patients entering the system.

There is also an attractive recurring element to the model. Masks and other consumables need replacing, creating ongoing demand.

At around 19 times estimated FY 2027 earnings, I think its valuation is compelling relative to the quality of the business and the runway ahead. That is what I want from a QARP investment.

Final word

I am not trying to find the cheapest shares on the ASX. 

I would much rather own a great business at a sensible price than an average one simply because its shares look inexpensive.

CAR Group, CSL, Goodman, REA, and ResMed all meet that test for me in different ways.

The post I screened the ASX for quality and value. These 5 shares stood out appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in CSL, Goodman Group, REA Group, and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, and ResMed. The Motley Fool Australia has positions in and has recommended Goodman Group and ResMed. The Motley Fool Australia has recommended CAR Group Ltd and CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.