Worried about a frothy market? 2 ASX shares attractively priced AND 1 dead simple buy

Pricey markets don't require sitting on the sidelines.

| More on:
A little Asian girl is so excited by the bubbles coming out of her bubble machine.

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 been a year of uncharted territory for the S&P/ASX 200 Index (ASX: XJO). Rising 7.4% year-to-date and setting new records, some investors are contemplating whether ASX shares have blown past the buy zone.

The Australian share market is not alone in its sensational run. On the other side of the globe, United States indices are belting out mind-boggling performances. It almost sounds fictitious, yet without a word of a lie, the S&P 500 — the poster child of corporate America — is up 22% year-to-date.

In times like these, people begin questioning the foundations of the euphoria. It doesn't help that the legendary Warren Buffett appears to be building a cash cathedral US$325.2 billion tall. Such a move may suggest the brain behind Berkshire is struggling to find good deals to deploy capital.

Why, then, do I think there are still good investments available on the ASX?

Pockets of value among ASX shares

The 200-strong basket of Australia's best companies is objectively priced on the more premium side right now. As the chart below shows, investors are paying roughly 25 times trailing earnings for a slice of Australian excellence — only outdone by the multiples achieved in 2016 and the pandemic period.

Source: S & P Market Intelligence

The great thing about being a stockpicker is that you don't need to accept the market premium. You can go fishing where the waters are brimming with bites. And I think I know just the spot to land some potentially monster-sized catches.

Let's start with Harvey Norman Holdings Limited (ASX: HVN).

This ASX share is up 10% in 2024, beating out the benchmark index. Yet, the retailing juggernaut only demands a price-to-earnings (P/E) ratio of 17 times earnings — a relatively palatable valuation considering we're dealing with a founder-led company with substantial brand recognition.

What about gaming goliath Aristocrat Leisure Limited (ASX: ALL)?

A P/E ratio of roughly 27 times earnings doesn't exactly scream value. However, I think Aristocrat has enormous growth potential in the years to come. The company has cultivated enviable gaming titles, such as Dragon Link and Lightning Link, that are crowd favourites. With more markets in the US to breach, Aristocrat's content excellence could boost the bottom line tremendously.

I believe these two ASX shares are far away from the realm of frothiness.

Cinch option to invest

But let's say the idea of buying shares in individual companies just isn't a vibe… too stressful, too hands-on, too concentrated.

If that were me, I'd then take a different approach — one that is dead simple but maybe not intuitive.

I'd just accept the possibility of 'frothiness'.

Yup, it would be as simple as buying an exchange-traded fund (ETF) like the iShares S&P 500 AUD ETF (ASX: IVV) and calling it a day.

It might mean I'd be buying into the US market at a rich valuation. However, assuming I keep buying with a dollar-cost averaging approach, what I pay today wouldn't really even matter. It's a simple way to invest without needing to worry about whether the market is expensive or cheap.

Still, as a stockpicker, I personally favour ASX shares like Harvey Norman and Aristocrat over a benchmark index.

Motley Fool contributor Mitchell Lawler has positions in Aristocrat Leisure. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway and iShares S&P 500 ETF. The Motley Fool Australia has positions in and has recommended Harvey Norman. The Motley Fool Australia has recommended Berkshire Hathaway and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

two racing cars battle to take first place on a formula one track with one tailing the the leader and looking to overtake the car.
Opinions

Down 21% in 2024. This ASX 300 stock looks like a money-making monster

Profits are expected to plunge, but the future could still be bright.

Read more »

Big percentage sign with a person looking upwards at it.
Opinions

Why ASX investors should 'ditch the fixation' with interest rates

How important are interest rates?

Read more »

Emotional euphoric young woman giving high five to male partner, celebrating family achievement, getting bank loan approval, or financial or investing success.
Opinions

The smartest ASX dividend share to buy with $2,000 right now

I think this is a smart passive income choice today for several reasons.

Read more »

Three young people in business attire sit around a desk and discuss.
Opinions

Want to start investing? These 3 ETFs can be a great first step

The first step can be the most important, but it doesn't need to the hardest.

Read more »

A young boy in a business suit lifts his glasses above his eyes and gives a big wide mouthed smile to the camera with a stock market board in the background.
Opinions

Is the ASX now entering the 'best period for sharemarket returns'?

The ASX share market could be a great place to be invested.

Read more »

A man in business pants, a shirt and a tie lies in the shallows of a beautiful beach as he consults his laptop on the shore, just out of the water's reach.
Opinions

1 ASX stock I bought for my superannuation fund and another I'm planning to buy

I believe in these ASX shares for the long-term.

Read more »

A smiling man take a big bite out of a burrito
Opinions

3 reasons the Guzman y Gomez (GYG) share price could still be a buy

Here’s why I think spicy growth could continue.

Read more »

A business person holds a big balloon in front of their face.
How to invest

I'm fine with a stock market crash. You might be too

This article might leave you longing for a ride to the downside.

Read more »