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Should you buy these beaten down ASX shares?

James Mickleboro
Share price plummet

The Australian share market may have its record high in sight, but not all shares have been on such good form.

Two shares that are down materially this year are listed below. Is this a buying opportunity?

The Challenger Ltd (ASX: CGF) share price has lost 20% of its value since the start of the year. The annuities company’s shares have come under pressure this year after weakness in Japanese annuity sales led to a profit downgrade. Challenger ultimately reported a full year net profit after tax of $307.8 million in FY 2019, which was a 4.6% decline on the prior corresponding period.

Unfortunately, things are expected to remain tough in FY 2020, with management providing normalised net profit before tax guidance of $500 million to $550 million. At worst this implies a year on year decline of 8.75% and at best it implies a 0.3% increase. Given this subdued outlook, I would stay clear of its shares until there has been a sustained improvement in its performance and would sooner buy Australia and New Zealand Banking Group (ASX: ANZ) shares.

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price is down over 11% in 2019. Investors have been selling the plumbing parts company’s shares this year after it disappointed the market with a downgrade to its earnings guidance because of weaker than expected sales across the majority of its businesses.

One of the main catalysts for this downgrade was the lack of a modest freeze event in the United States during the winter. This weather event usually results in pipes breaking, causing an uptick in sales of its push-to-connect plumbing fittings. So, with one not occurring, demand was unfortunately weaker than expected. I believe this is only a temporary headwind and expect the company to bounce back in FY 2020. This could make it worth taking advantage of this share price weakness with a small investment in its shares.

As well as Reliance, I think these dirt cheap shares are impossible to say no to at their current prices.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia has recommended Reliance Worldwide Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019