Why WAM is bullish on small caps (and the team's 30 best ideas for the recovery)

In addition, building materials-related companies are also an interesting area of the market, Oberg said. 

“The reason is analysts have really cut their numbers hard, as you’d expect, with house prices, approvals, and new housing falling off,” he said.

“But again, we think that they’ve just cut too much and interestingly, looking at a company that’s been around for a very long time, like Fletcher Building, it’s trading on a PE of nine times at these depressed earnings levels.” 

Normally, as cyclical companies, when earnings are depressed, building materials will have higher valuations, he explained. 

“At the moment, analysts expect earnings to come back in probably three or four years. We actually think they’ll come back in two or three. So we like that sector, it looks very, very attractive,” Oberg said. 

“Other stocks we own there would be CSR (ASX: CSR), Boral (ASX: BLD), and Maas Group Holdings (ASX: MGH), which is a key holding of ours.” 

Meanwhile, for Yao, the best value right now is in aged care – specifically Estia Health (ASX: EHE)

“The aged care industry has had a very long period of negative news coming out of the Royal Commission into Aged Care. And obviously more recently, COVID,” he said. 

“But we are now at this juncture where we believe the government will have to fund the space a lot more. And that benefits the aged care players, like Estia Health, which is buying other assets at very, very attractive prices.

“It’s one of the only consolidators in this space, the management is really good, they’re very efficient. We think they can acquire these assets, turn them around, and run them effectively.” 

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