In The Australian Financial Review today there is an article titled: "Stock-pickers must work harder in 2014". It says: "Investors will have to be more selective about stocks…the benchmark is trading at 14.9 times future earnings." Darn, it looks like we might actually have to work for our money this year.
Despite the pricings across many big name stocks, I believe there are still a number of great companies which are trading at relatively modest earnings multiples and have room for growth in 2014 and beyond.
Given its organic potential, I'm surprised many investors have overlooked M2 Telecommunications Group Limited (ASX: MTU) as both a growth and income play. It owns the brands Dodo, Primus and Commander. In 2014, earnings-per-share are expected to grow from 27 cents to 51.3 cents, giving it a forwards price-earnings ratio of approximately 12.
With its commanding position in the telecommunications market, its downside risks are quite limited. The company's management have recently changed its growth strategy from acquisitive to organic. With its current debt levels the cheaper growth model is understandable and provides an opportunity for the group to grow its returns on capital, which currently stands at 9% (in 2011 that number was nearly 30%). The company can also be expected to maintain a high payout ratio and it currently trades on a forecast yield of 4% fully franked.
My Net Fone Limited (ASX: MNF) is a small-cap telecommunications company which provides VoIP and DSL internet to businesses and homes. The group has grown revenues strongly since 2006, increasing year-after-year despite a GFC and competition from much bigger rivals. The company has a payout ratio of 50% and earnings are expected to jump to 9 cents in 2014 – 28% higher than current levels.
The company has pursued both organic and acquisitive growth and for the year ended June 30 2013, reported NPAT up 34% to $4.14 million on 20% higher revenues of $46 million. It is always good to see higher profit growth than revenue, it shows the company is working more efficiently whilst also increasing the top line. Management recently upgraded its FY2014 EBITDA guidance to approximately $8.6 million.
From downstream service providers to satellite communications company Newsat Limited (ASX: NWT). It is Australia's only pure play satellite company which has rights to several orbital slots over Asia, Europe, Africa and the Middle East. There is a lot of expectation built into this stock because it is yet to launch satellites into orbit.
The company is planning to launch one satellite in 2014 and another in 2015. It is anticipated the company's Jabiru-1 satellite will bring in US$3 billion of contracts over 15 years at 85% margins. Contracts will be derived from large multinational corporations and government departments. It already has binding pre-launch contracts for one satellite of US$644 million, and it is expected to launch in 2015. With a market capital of $284 million and a price-earnings ratio of 100, this stock is ready to take off.
