Wilson Asset Management thinks these 2 ASX shares are a buy

Respected fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in its portfolio.

WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).

There’s also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.

WAM says WAM Leaders actively invests in the highest quality Australian companies.

The WAM Leaders portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 12.8% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 8.6%.

These are the two ASX shares that WAM outlined in its most recent monthly update, which were two of the largest contributors of performance for the month:

Wesfarmers Ltd (ASX: WES)

Wesfarmers is described by WAM Leaders as an Australian conglomerate with diverse business operations, owning household names including Bunnings, Kmart, Target, Catch and Officeworks. It also operates in multiple other industries with its chemical, energy and fertilisers (WesCEF) division and industrial and safety division.

WAM said that Bunnings and Officeworks have been notable beneficiaries of the coronavirus pandemic as Australians spent more time working and renovating at home, and recent retail sales data indicates this momentum is continuing into 2021.

Bunnings is also set to leverage ongoing strength in the housing market, according to WAM Leaders. There is record property prices and new housing loan approvals significantly beating expectations in January.

A further catalyst for the ASX share is the potential for mergers and acquisitions, with approximately $4 billion on the balance sheet after the sell down of its stake in Coles Group Limited (ASX: COL).

WAM Leaders said that Wesfarmers has a strong track record of value enhancing transactions, and either a large acquisition or multiple bolt-ons will help diversify its growth runway over the coming years.

The Wesfarmers share price is valued at 29x FY21’s estimated earnings.

Incitec Pivot Ltd (ASX: IPL)

The fund manager said that this business is a global diversified industrial chemicals company that manufactures and distributes industrial explosives, industrial chemicals and fertilisers.

One of the key drivers of the Incitec Pivot share price is commodity prices, according to WAM Leaders.

In January, ammonia, urea and DAP fertiliser prices went up strongly, driven by improved seasonal conditions, strong soft commodity prices, constrained supply and improved industrial demand. The fund manager said that this has more than offset the stronger Australian dollar (partially mitigated by the company’s foreign exchange hedging program) and higher natural gas prices.

WAM Leaders expects that the fertiliser price momentum will continue to support the share price, with earnings upside outweighing potential headwinds facing the Australian coal market.

The Incitec share price is valued at 15x FY22’s estimated earnings according to Commsec.

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• Brokers name 3 ASX shares to buy right now
• Why the Wesfarmers (ASX:WES) share price has soared 24% in a year

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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