I think it’s a pretty difficult investing environment right now, but there’s always a pocket of ASX shares that look interesting.
Why is it difficult?
There seems to be quite a bit of investor euphoria at the moment. Businesses in the tech space that are generating a lot of revenue growth are being priced to the moon, such as Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO).
In some ways, you can actually justify these types of prices if you think about how low the central banks have pushed the interest rates and then you consider the discounted cashflow analysis and what discount rate to use. What happens to those share prices when/if interest rates rise? Who knows. I’m not looking here though.
Then there are those businesses that used to be generating a lot of growth, but COVID-19 impacts are hurting the growth quite a bit. I’m talking about shares ranging from Altium Limited (ASX: ALU) and Audinate Group Ltd (ASX: AD8), all the way to the travel shares like Webjet Limited (ASX: WEB) and Serko Ltd (ASX: SKO). There may be some value here, but it’s not where I’m looking for my own portfolio. It’s hard to say when some of these businesses will be back to normal operating conditions, if ever.
And then there are some ASX shares like retail that are seeing enormous growth now. But how long will that last? Half a year? A year? Many years?
Where I am looking for ASX shares
One of the main areas where I am looking is ASX shares with long term growth potential that have a lot of US dollar exposure in some way.
The Aussie dollar has strengthened significantly over the last 12 months. A year ago one Australian dollar was worth US$0.67, that has now risen to US$0.77. That means Aussie can buy around 15% more ‘stuff’ in US dollars than before. Foreign currency shouldn’t be a big part of an investment decision, but I think it has opened up some opportunities for businesses which I’d be very interested in buying anyway.
Businesses that have US assets or US earnings have seen their share prices fall in recent months, such as Pushpay Holdings Ltd (ASX: PPH) and Magellan Financial Group Ltd (ASX: MFG), which are also two of my preferred ideas right now.
Whilst I’m not looking to buy shares of businesses like CSL Limited (ASX: CSL), it’s another example of a business where the short term share price movements have gone against it and these ASX shares could be better value, relative to other ASX growth shares.
Instead of CSL, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
