There is something of a consensus going around the ASX circles that there are 'no cheap shares left' in this market right now – or at least no cheap shares left that aren't cheap for a reason. But often it's this 'reason' which is worthy of examination. Sometimes the market makes assumptions about a particular ASX share which don't turn out to be all that dire. So here are 2 beaten-down cheap ASX shares that I think the market might be undervaluing today. These companies aren't perfect but could be a good fit for the right investor at today's prices.
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1) Telstra Corporation Ltd (ASX: TLS)
Telstra shares are unquestionably cheap right now. At the time of writing, Telstra is trading for $2.87. That's just a touch off the company's new 52-week low of $2.81 made last week, and a long way from the 52-week high of $3.94 that Telstra was asking back in February. So why are Telstra shares stuck in the doldrums?
Well, sentiment around the telco has been ebbing since the release of its FY2020 earnings report last month. Telstra disappointed with its guidance for FY21, which implied that the company would have to trim its dividend due to the likelihood it would exceed its earnings payout target. Still, I think there's a good chance Telstra will keep its 16 cents per share payout steady by switching to a free cash flow metric rather than earnings. The company estimates it will have more than enough free cash flow to cover a 16 cents per share payout in FY21 and beyond.
As such, I think the trailing dividend yield of 5.55% that Telstra offers today comes very cheap and makes for a great deal for a dividend investor.
2) Newcrest Mining Limited (ASX: NCM)
Newcrest is our second cheap share today. As the ASX's largest gold miner, Newcrest shares should theoretically be benefitting from the highest gold prices we have ever seen in 2020 so far. Even today, the gold price is sitting at around US$1,946 an ounce, well above the previous all-time high of US$1,921 that held from 2011 until this year. And that's after it climbed all the way up to $US2,061 an ounce early last month. Even on today's pricing, gold is up around 28% for the year. Yet Newcrest shares are only up 6.91% over the same period and are going for $31.85 at the time of writing.
I think the factors that have pushed gold higher in 2020 – namely the massive amount of central bank stimulus going into economies around the world – are here to stay for at least a few years. Therefore, I think the gold price has the potential to push even higher as a result. From where I'm standing, that makes Newcrest shares fairly cheap today. Therefore, I think this company could make a good buying opportunity, particularly if you want to add some counter-cyclical weight to your portfolio that a gold miner can provide.
