'Risks to upside': 2 discounted ASX 200 shares for 'quality' companies

Experts say you can grab a piece of two classic Aussie businesses for cheap right now.

| More on:
Beautiful holiday photo showing two deck chairs close-up with people sitting in them enjoying the bright blue ocean and island view while sipping champagne and enjoying the good life thanks to Pilbara Minerals share price gains in recent times

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's a fact of life that sometimes stocks for even high quality S&P/ASX 200 Index (ASX: XJO) businesses are discounted by the market.

It's worth remembering in these situations that share prices are driven purely by supply and demand for the equity, not company performance or outlook. 

Therefore, it's not out of the question to pick up ASX 200 shares for an absolute bargain occasionally.

But you have to pounce, as the buying window might be pretty short as other investors cotton on.

Here are two such examples from experts this week:

'Buy a better-than-average quality company at a discount'

The Aurizon Holdings Ltd (ASX: AZJ) share price has fallen 9.75% since mid-July.

For longer-term investors, it's been even more of a horror show, as the stock is down 40% since its pre-COVID September 2019 high.

Ord Minnett senior investment advisor Tony Paterno feels the freight rail company has been punished enough.

"Aurizon offers an appealing dividend yield underpinned by high-quality rail infrastructure and haulage operations," Paterno told The Bull.

"Considerable downside is priced into the shares, and our analysis suggests that risks for investors are skewed to the upside."

The yield is indeed at a tidy 4.15%, which is 60% franked.

La Nina had dented Aurizon's performance in the immediate past, but that factor's now gone with El Nino coming to the Australian east coast.

"Haulage volumes were weak in fiscal year 2023 because of wet weather, but the outlook suggests a recovery in volumes. 

"We expect haulage tariffs to rise with the consumer price index." 

All this points to a golden buying opportunity, reckons Paterno.

"We think environmental concerns are overblown, providing an opportunity for investors to buy a better-than-average quality company at a discount."

The stock that returns both 'capital growth and dividends'

BHP Group Ltd (ASX: BHP) shares are also currently trading about 9.5% lower than its January peak.

BW Equities equities salesperson Tom Bleakley is bullish about one of BHP's minerals that doesn't get a whole amount of publicity.

"We expect the mining giant to benefit from increasing demand for copper as the world transitions to electric vehicles," he said.

"BHP operates some of the world's biggest copper mines."

And of course, the advantage of buying into a $229 billion company is that it has plenty of other stews on the stove, too.

"The company offers diverse revenue streams from producing iron ore, nickel and metallurgical coal," said Bleakley.

"The shares offer value at recent price levels. Investors can consider buying BHP for capital growth and dividends."

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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Aurizon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Man putting in a coin in a coin jar with piles of coins next to it.
Dividend Investing

Where I'd invest $5,000 into ASX dividend shares right now

These stocks are strong contenders for passive income.

Read more »

Woman relaxing on her phone on her couch, symbolising passive income.
Dividend Investing

Why I think these 2 ASX dividend shares are ideal for income investors

These businesses offer a lot for income seekers.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Dividend Investing

Is the Suncorp share price a buy for passive income?

Investors could gain a lot of income from this stock.

Read more »

a man in a business suit and carrying a laptop stands smiling with hand in pocket outside a large office building in a city environment.
Growth Shares

Buy these 2 impressive ASX 200 shares in July: experts

Experts are bullish about these two businesses.

Read more »

View of a business man's hand passing a $100 note to another with a bank in the background.
Dividend Investing

3 ASX dividend shares to buy with $10,000

Let’s see which shares brokers think are in the buy zone right now.

Read more »

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
Growth Shares

3 ASX 200 shares set to dominate the next decade

Let's see why these shares could be great long term picks for Aussie investors.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Index investing

ASX 200 or ASX 300? Here's the index fund that comes out on top

Do those extra 100 stocks really make a difference?

Read more »

Dog with a shoe in its mouth.
Cheap Shares

I think these 2 cheap ASX shares are buys for value investors

These businesses could be too cheap to ignore.

Read more »