2 beaten-up ASX shares now ready to rally: expert

Quality companies could be more resilient in plunging markets. Here are 2 of the best in Australia, whose stocks could now be a bargain.

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ASX shares have generally done pretty well in the past 18 months, but there are some individual stocks that, for some reason or another, haven't had a good time.

But if they are quality businesses with decent prospects, there is an argument for snapping up those shares while they're cheap.

Then just sit back for a few years and watch the valuation catch up to its "true" worth.

So goes the theory, anyway.

Fairmont Equities director Michael Gable this week picked out 2 underperforming ASX shares that he believes are ready to rally.

ASX share set to surpass its all-time highs

While every commentator seems to agree CSL Limited (ASX: CSL) is one of Australia's highest quality businesses, its shares have gone sideways recently.

As of Thursday afternoon, the stock had only gained 1.46% over the past 12 months. And it's lost a painful 6.7% over the last 5 days.

But Gable, as a technical analyst of stock price movements, reckons CSL has turned a corner.

"I can now see some good buying support in the stock and it has broken above some important resistance levels," he said on the Fairmont blog.

"I expect the stock to rally and surpass its highs in early 2020, as it's enjoying favourable momentum."

The highest CSL shares have ever been is closing $336.40 on 21 February 2020. A rally to that point from now would lead to a more than 15% gain.

Switzer Financial director Paul Rickard told Switzer TV Investing last week that CSL is one of those companies that could be resilient even if the market turned bad.

"My guess is CSL is going to be one of those companies that's going to be well-supported even in a bear market," he said.

"The pandemic has got to be good longer-term for health companies. I think we're all going to be a lot more conscious of these things."

Despite lockdowns, these ASX shares have taken a huge haircut

Shares for retail conglomerate Wesfarmers Ltd (ASX: WES) have lost more than 15% since 20 August.

Now might be the time to snap up the owner of famous brands like Bunnings and Kmart, according to Gable.

"The recent full year results were solid, but it appears as though the valuation for WES was stretched," he said.

"We are now at a level, though, where the valuation is more appealing and there also appears to be strong support at these levels on the chart."

Wesfarmers is currently caught up in a couple of acquisition plays.

On Monday, the competition watchdog stated it would not stand in the way of Bunnings' proposed takeover of Beaumont Tiles

Meanwhile, Wesfarmers is also trying to acquire pharmaceutical company Australian Pharmaceutical Industries Ltd (ASX: API) but is in the midst of a bidding war against Sigma Healthcare Ltd (ASX: SIG).

Both parties have reportedly now been granted access to perform due diligence.

With great long-term prospects, Gable likes the share price after the recent tumble.

"With a capital return due to shareholders later this year, it is now the time to get back into Wesfarmers."

Motley Fool contributor Tony Yoo owns shares of CSL Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. The Motley Fool Australia owns shares of and has recommended 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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