Growth shares are very much out of favour at the moment, with some technology stocks halving the past few months.
The team at Wilsons Advisory admitted the immediate outlook for growth shares is still not great.
"With bond yields continuing their upward climb during March, the environment for growth stocks still presents a headwind in the short-term," read its recent memo to clients.
"It may not be until mid-year when greater clarity emerges on both the pace and ultimate level of interest rates in the US."
But long-term investors know that if you have businesses that have structural drivers for growth then it will overcome short-term macro-economic factors like inflation and wars.
"Our view remains that over the medium to long-term, if companies can grow their earnings above market, share prices will follow."
As such, the Wilsons analysts presented their case for why they love 3 particular ASX shares that are taking up 11% of the Wilsons Australian Equity Focus List.
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'Long-term structural growth qualities' will win in the end
The team stated it currently has a "positive stance" on Aristocrat Leisure Limited (ASX: ALL), James Hardie Industries PLC (ASX: JHX) and Seek Limited (ASX: SEK).
The memo showed how all 3 stocks have had their prices slashed more than the MSCI Australia Growth index, indicating a discount to the general market.
"In our view, all 3 companies provide long-term structural growth qualities which are presently being discounted by the market," stated the team.
"We still believe they can grow earnings well ahead of the market over the next 3 years."
The big catalyst for gaming provider Aristocrat is expected to be the release of its first-half results on 19 May.
"Near-term growth could be closer to +25% as land-based gaming continues to rebound," the Wilsons memo read.
"Currently trading on a PE multiple of 21x, Aristocrat does not seem expensive relative to its earnings growth potential."
With rising interest rates, many investors think that building materials provider James Hardie will suffer from a downturn in housing construction.
But Wilsons analysts disagree.
"We believe the James Hardies' growth is less dependent on the housing cycle than many believe given; 1) proven ability to grow through the cycle; 2) emerging B2C proposition, and 3) EU assets are much earlier in their lifecycle."
The team noted that the James Hardie share price is currently trading at 10% below the industrials index, even though its 10-year average is 40% above it.
As for jobs classifieds site Seek, Wilsons analysts think that the share price could exceed $40 if the company can successfully execute its plans.
That's more than a 30% premium on the current level.
"We think the market is still too focused on ad volumes, as distinct from revenue – which should hold up better than volumes as SEK continues on value-based pricing and removal of the recruiter fee discount," read the memo.
"We believe the market is likely to underestimate the benefit from the switch to value-based pricing, much like it did with Carsales.com Ltd (ASX: CAR) and REA Group Limited (ASX: REA)."
