I think there are some great ASX shares to buy in May 2022. The environment of inflation and interest rate rise expectations is creating opportunities.
Some business valuations have fallen significantly over the last several months. I think the businesses that aren’t being impacted heavily by supply chain concerns are now much better value for the long-term.
There are also ASX shares where the inflation could benefit their bottom line, like supermarkets.
With those considerations in mind, I think these two ASX shares are looking like attractive long-term investments:
Metcash Limited (ASX: MTS)
I view Metcash as a mixture of Wesfarmers Ltd (ASX: WES) and Coles Group Ltd (ASX: COL). Metcash has a food distribution business which supplies IGA nationally, a liquor business which supplies a number of independent liquor businesses and a hardware business which includes Mitre 10, Home Timber & Hardware and Total Tools. I think it’s a quality business.
If Metcash can maintain the same profit margin in its food division, then inflation will mean the profit in dollar terms can increase. Inflation has increased the growth potential for the business. I was already impressed with the ASX share’s hardware segment which is/was growing profit. It won’t become as big as Bunnings, but Metcash’s hardware business is the clear number two in Australia.
Metcash has a pleasing, relatively high dividend payout ratio. This means that Metcash can reward shareholders with solid cash returns each year as it grows profit and hopefully the Metcash share price.
Australian Ethical Investment Limited (ASX: AEF)
The Australian Ethical share price has dropped 56% since the start of the 2022 calendar year.
It’s still not exactly cheap compared to many other fund managers, but I think the current price is much more palatable. Australian Ethical is a funds management business that aims to provide investment funds that invest with ethics that match (or even exceeds) the level of ‘ethics’ of the people it’s investing for.
There is a growing trend of money flowing into funds that pay attention to ESG (environmental, social and governance) factors. In the latest quarter, being the three months to March 2022, Australian Ethical benefited from $0.24 billion of net flows.
However, due to all of the volatility of markets, funds under management (FUM) fell to $6.83 billion at the end of the quarter, down from $6.94 billion at December 2021.
Australian Ethical is also benefiting from strong superannuation contributions. This includes consistent superannuation guarantee contributions, as well as rollovers/balance transfers from new customers joining. I think this is a key factor that will help FUM continue to grow for the long-term.
