A leading fund manager has picked out two industrial S&P/ASX 200 Index (ASX: XJO) shares it thinks are appealing opportunities in the current environment because of their future outlooks.
In its latest monthly update, L1 Capital said it believes equity (or share) markets are "facing opposing forces of positivity from moderating inflation and potential policy stimulus in China, offset by headwinds from weak leading economic indicators, increasing pressure on corporate earnings and lingering tail risk from geopolitical tensions".
L1 had this to say on the outlook for ASX shares:
We anticipate rising market volatility as investors continue to reassess their expectations for the economy, interest rates and corporate profits. From our extensive company research, we are continuing to identify numerous mis-priced stocks that we believe will deliver attractive long-term returns for our investors.
According to L1's monthly update, there are two industrial ASX 200 shares in its portfolio that it is positive about.
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Downer EDI Ltd (ASX: DOW)
This business describes itself as a leading provider of integrated services in Australia and New Zealand. It designs, builds, and sustains assets, infrastructure, and facilities for its clients.
L1 noted the Downer share price strengthened over the month (with a rise of 7%) as the company "continues to progress its transition towards a higher-quality urban services portfolio".
The fund manager is attracted by new leadership at both the board and senior management level, and noted the ASX 200 share is pursuing "additional self-help measures and simplification initiatives" within its core business.
One of the main things the business is working on is a cost reduction target of $100 million per annum by FY25 and potentially further asset sales.
L1 concluded with the following:
We anticipate these changes will help transform Downer into a more resilient, less capital-intensive and lower risk services business exposed to growing, annuity-style contracts.
Worley Ltd (ASX: WOR)
This ASX 200 share describes itself as a worldwide team of consultants, engineers, construction workers and data scientists. It's a large business, with a market capitalisation of around $9 billion.
L1 pointed out there is continued positive sentiment towards energy capital expenditure, along with "major project wins".
The fund manager said Worley is one of the few global engineering consultancy businesses that is "ideally positioned" to benefit from the energy transition shift and significant spending likely to be invested in hydrogen, carbon capture, and renewable energy.
Explaining its positive outlook on the ASX 200 share, L1 said:
We believe Worley is in the early innings of the pivot to 'green' energy opportunities, with the market continuing to view the stock as a legacy oil and gas engineering contractor, despite its critical role in enabling the energy transition.
