'Quality companies are rarely cheap': 3 ASX shares to buy out of reporting season

Here's a trio of stocks looking ripe to add to your portfolio, according to Morgans' Andrew Tang.

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If the flood of numbers during reporting season is overwhelming, there is help at hand.

For example, you could consider the thoughts of professional investors, who have all day to analyse the finer details of company reports.

Morgans analyst Andrew Tang this week named three ASX shares that his team would buy, following their 2023 numbers:

'Industry leader' in the 'most contested' subsector

Tang wrote in his Best Calls to Action memo to clients that Goodman Group (ASX: GMG) delivered "another solid result" last week.

"Operating EPS (OEPS) [continues] to grow at a healthy rate (+16%), more than offsetting any impact on cap rates from the higher interest rates

"Management [remains] laser focused on infill sites across gateway markets, avoiding commodity industrial assets."

The industrial real estate developer has consciously tried to sidestep the "interest rate pain", he added.

Created with Highcharts 11.4.3Goodman Group PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

"The portfolio [is] benefiting from market rental growth, low vacancy and the continued demand for under-developed industrial sites suitable for higher and better use (multi-level industrial, data centres, multi-unit residential)."

Goodman has been a popular stock in recent years due to the rise of online retail, and Tang admits it is still no bargain.

But you get what you pay for.

"At an FY24f PER [price-to-earnings (P/E) ratio] of circa 20x, Goodman Group is certainly not cheap, but quality companies rarely are," he said.

"Goodman is arguably an industry leader, focused on what remains the most contested real estate sub-sector – industrial. To this end, GMG's pipeline of development sites across Tier 1 cities should benefit from increased demand for densification and proximity to end customers."

'Recovery in underlying profitability'

As a contrast, Tang thought Sonic Healthcare Ltd (ASX: SHL)'s numbers were "mixed", but still believes in the stock in the long run.

Created with Highcharts 11.4.3Sonic Healthcare PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

"COVID-19 related costs remained elevated, impacting profitability, while revenue was broadly in-line."

Sonic executives are busy reducing "legacy pandemic costs", he added.

"We believe this focus, along with numerous other near/medium term growth initiatives, supports a recovery in underlying profitability, reflected in guidance, although full bottom line improvement will take a bit longer."

Specialist automotive cooling technology provider PWR Holdings Ltd (ASX: PWH) presented a report that was "largely in line with expectations".

One of the big positives was that the revenue from the aerospace and defence business saw a healthy boost.

Created with Highcharts 11.4.3PWR Holdings PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

"Balance sheet remains healthy with net cash (ex-leases) of $17.6 million."

There were some negatives though, with normalised EBITDA margin down due to rising labour costs, and return on equity plunging 270 basis points to 24.6%. 

So overall, the Morgans team remains bullish on PWR Holdings but has downgraded its short-term expectations.

"We make minor adjustments to earnings forecasts with FY24-26F normalised EBITDA increasing by 2% to 3%."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group and PWR Holdings. The Motley Fool Australia has positions in and has recommended PWR Holdings. The Motley Fool Australia has recommended Goodman Group and Sonic Healthcare. 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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