5 Stocks for this choppy market
By Scott Phillips (TMFGilla) - August 10, 2011
It’s been a tough couple of weeks. The S&P/ASX 200 closed down 7.2% last week, and the beginning of this week has shown the pain might not be over for local investors.
The volatility is stomach-churning, and the losses hurt. If you’re like me, your portfolio is poorer for the experience.
There are three ways an investor can respond to the recent volatility – you can panic and sell, bunker down and wait for the storm to pass, or you can take advantage of the opportunities that may come your way.
When fear is in the air, the market reacts almost unilaterally. The drops may not be equal, but almost no-one – and no company – is spared. If you have cash available to invest, this tendency has the potential to provide you with the sorts of opportunities that only come along only rarely – the chance to buy quality companies at attractive prices, and shares in growing businesses at moderate multiples.
With this mind, the team at The Motley Fool have chosen 5 stock ideas for investors looking to put some cash to work amid this volatility.
Dean Morel, Investment Analyst, Motley Fool Australia:
Woolworths (ASX: WOW) is Australia’s largest grocer, as well as owner of the Big W, Dick Smith and Dan Murphy’s businesses. With a consistently strong return on equity, excellent management, a strong balance sheet and a business skewed to stuff we need rather than want, at around $25 Woolies is attractive for the long term. With a dividend yield now at a 10 year high of around 4.7%, investors will be well compensated while they await the return of optimism.
While the Liberal Party power broker and one of Australia’s richest businessmen, Andrew Abercrombie, probably shouldn’t have bought shares in Amcom (ASX: AMM), investors should now be taking a close look. This Western Australian small cap owns great fibre assets which they’ll continue to leverage while simultaneously positioning themselves for a future in the cloud. Amcom has a healthy dividend, a strong balance sheet, and is positioned for growth.
Bruce Jackson, Motley Fool Australia General Manager:
One of Australia’s export successes, CSL (ASX:CSL), formerly the Commonwealth Serum Laboratories, is a leader in the blood products business, with a truly global footprint. CSL has delivered a long record of successful growth, and has tended to carry a price/earnings multiple to match. Usually in the low-mid 20s, CSL’s P/E ratio has fallen to the mid teens – a very reasonable price to pay for a business in a growth market, and with little susceptibility to the vagaries of a fickle global consumer.
Scott Phillips, Feature Columnist, Motley Fool Australia:
Two cyclones and a flood in Queensland and an earthquake in New Zealand were devastating for the communities in their paths, and also took their toll on insurers underwriting profits. QBE Insurance (ASX: QBE) would normally be impacted less than Australian-centric insurers due to its international breadth.
Unfortunately, very low interest rates in the United States are taking their toll on QBE’s investment returns. Right now, the company just can’t take a trick. These factors were already impacting heavily on QBE’s share price, and the recent market drops have only exacerbated the falls. Trading on a price/earnings ratio of just over 10 and with a trailing yield of more than 9%, QBE is trading at a price suggesting the future will be no better than the present. I think that’s unlikely.
Telstra’s (ASX: TLS) future has certainly been hotly debated over the past couple of years. That future now has a little more certainty, thanks to the agreement with the Federal government on Telstra’s role alongside the NBN, and a corresponding payment from the Commonwealth. With an income stream that is less discretionary than many, and an impending 4G rollout as well as growing demand for mobile data services, there is both a defensive and growth element to Telstra’s revenue. Telstra’s infamous dividend of 28 cents each year means the company is now trading on a fully-franked 10% dividend yield, providing investors with very handy returns while we wait for growth to resume – and limited downside if it doesn’t.
Last week, the market believed Woolworths was worth over $27. This week, it’s offering to sell you the same company for around 10% less. We don’t think Woolworths’ business is anywhere near 10% less valuable than it was a week ago. The same goes for many other stocks.
The companies listed above are businesses we think have been oversold by the market and may well provide market beating returns from here, if you can look through the current pessimism.
Scott Phillips is The Motley Fool’s feature columnist. The Motley Fool staff and contributors listed above have interests in Woolworths, Amcom, QBE and Telstra – we eat our own cooking. The Motley Fool’s purpose is to educate, amuse and enrich investors. Motley Fool readers readers can click here to request a new free report titled Read This Before The Market Crashes.
OUR #1 DIVIDEND PICK FOR 2016...
Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.
It?s been a tough couple of weeks. The S&P/ASX 200 closed down 7.2% last week, and the beginning of this week has shown the pain might not be over for local investors.
The volatility is stomach-churning, and the losses hurt. If you?re like me, your portfolio is poorer for the experience.
There are three ways an investor can respond to the recent volatility ? you can panic and sell, bunker down and wait for the storm to pass, or you can take advantage of the opportunities that may come your way.
When fear is in the air, the market reacts almost unilaterally….