S&P/ASX 200 Index (ASX: XJO) shares can be a great place to find opportunities that are undervalued or have been sold off. Even giant ASX 200 shares can be mispriced by the market, despite how many analysts and investors are looking at the business.
A business won't necessarily go up just because it's undervalued. Some companies always seem to be underrated by the market compared to the financial performance they have achieved and what they're expected to do from now.
Having said that, I think the below two ASX 200 shares are trading at an attractive valuation and can beat the market from here.
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Coles Group Ltd (ASX: COL)
The Coles share price is down 14% in the last six months, compared to a rise of 3% for the ASX 200. The ASX supermarket share has significantly underperformed, but this could be a good time to look at the company.
Pleasingly, sales continue to grow – in the first quarter of FY24, supermarket sales increased 4.7% with e-commerce revenue growth of 24.6%, while liquor sales increased 1.8% with e-commerce revenue growth of 32.2%.
Wage costs are expected to grow meaningfully in FY24, which will be a drag on margins and overall net profit after tax (NPAT). However, the company is working on reducing costs where it can.
One of the things I'm most excited about with Coles is the approaching completion of all of the advanced warehouses and distribution centres it's working on. The importance of having the best logistics and customer fulfilment centres is highlighted to me by the strong growth of e-commerce.
It also makes sense to me that the giant ASX 200 share could benefit from Australia's growing population because more mouths need feeding, resulting in more potential shoppers in the supermarkets.
I think Coles can deliver solid earnings growth in FY25 and this could help improve investor sentiment about the business. Until then, investors can receive a decent dividend.
In FY24, it could pay an annual dividend per share of 64 cents (according to Commsec), which could be a grossed-up dividend yield of 5.7%.
Sonic Healthcare Ltd (ASX: SHL)
Sonic is one of the world's largest pathology businesses, it has a market capitalisation of $15 billion. In FY23, it generated revenue of more than A$1.5 billion in the USA, Australia and Germany, and it made revenue of around A$600 million in Switzerland and the UK.
In the past six months, the Sonic Healthcare share price has dropped 11% and underperformed the ASX 200.
The business continues to see strong underlying growth – base business (excluding COVID-19 testing) organic revenue growth in the first four months of FY24 was 7%. That's a strong revenue growth rate for a large healthcare business.
I also like that the giant ASX 200 share is making acquisitions, which increases its market share in other regions. It has made some acquisitions in Germany and Switzerland which has boosted total bas business revenue growth in FY24 to date to 17% (including those acquisitions).
Sonic Healthcare is investing in growth areas such as digital pathology and artificial intelligence. Sonic's AI joint venture called Franklin.ai will see its products deployed within the company and sold globally.
The business has grown its dividend for most years over the past 30 years, with a few years where the dividend was maintained. It has a strong dividend record, and the trailing grossed-up dividend yield is 4.7%.
