Rebound: I’m finding cheap ASX shares to buy before it’s too late!

After a terrible first half of 2022, the S&P/ASX 200 Index (ASX: XJO) has rebounded strongly and climbed an impressive 14.7% from its lowest point in June.

Key drivers of this rebound have been the banking and resources sectors, with BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA) leading the charge.

The good news for investors is that outside these sectors, there are still plenty of ASX shares that could be considered cheap.

But they aren’t likely to stay cheap for long if inflation continues to soften and investor sentiment improves.

In light of this, I would suggest that investors look to take advantage of 2022’s weakness by making investments in high-quality shares that are trading at cheap prices.

But which ASX shares are cheap?

Firstly, it is worth remembering that cheap shares are often cheap for a reason. So, I wouldn’t go rushing in and buying everything trading at a discount. Instead, I would look for companies with strong business models, positive long-term growth potential, and attractive valuations.

If not, you could potentially fall into a value trap.

Two potentially cheap ASX shares that immediately spring to my mind are from the quick service restaurant industry — Collins Foods Ltd (ASX: CKF) and Domino’s Pizza Enterprises Ltd (ASX: DMP). Collins Foods is a major operator of KFC restaurants in Australia and Europe, whereas Domino’s, of course, is a pizza chain operator with restaurants across Australia and New Zealand, and the Asian and European markets.

Both are trading sharply lower this year because inflationary pressures are weighing on their margins. However, this headwind should be transitory and we are already seeing signs that rising rates are having a positive impact on inflation.

Once inflation is under control and margins recover, I expect the good times to return and their global expansion to underpin strong long-term sales and earnings growth.

It is for this reason that I recently bought Domino’s shares.

More options

Another side of the market that has been hammered this year is the retail sector. This has been driven by concerns that retail spending could be negatively impacted by the cost of living crisis.

And while I agree that these are tough times for discretionary retailers, I think some will fare better than others. Particularly those with exposure to younger consumers that aren’t being impacted by higher mortgage payments but are benefiting from an increase in the minimum wage.

Goldman Sachs recently commented on this group of consumers, saying:

We believe the young Australian consumer, aged ~15-24 is uniquely well positioned. […] We estimate that the combined impact of a minimum wage uplift and limited inflationary/housing cost pressures has resulted in an additional ~A$570 to A$935 per person annual disposable income for those that work and live at home; at the midpoint this is an aggregated ~A$1bn in incremental spending power.

In light of this, I think youth-orientated retailers Accent Group Ltd (ASX: AX1) and Universal Store Holdings Ltd (ASX: UNI) would be great options for investors. Especially with their shares down 29% and 22%, respectively, this year.

This leaves them trading at a very reasonable 12.6x and 14x FY 2023 earnings based on Goldman’s estimates.

There’s a world of opportunity out there for investors, you just need to do a bit of digging.

The post Rebound: I’m finding cheap ASX shares to buy before it’s too late! appeared first on The Motley Fool Australia.

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More reading

• Here are 3 ASX 200 shares going ex-dividend next week
• Growth is back: 3 ASX shares to buy now for a 2023 re-rate
• The Collins Foods share price has been decimated this week, and 4 directors are buying the dip
• These were the worst performing ASX 200 shares in November
• Domino’s share price halted amid $165 million cap raise

Motley Fool contributor James Mickleboro has positions in Collins Foods and Domino’s Pizza Enterprises. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Collins Foods. The Motley Fool Australia has recommended Accent Group, Collins Foods, and Domino’s Pizza Enterprises. 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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