Investors who have been entering into the spirit of the Melbourne Spring Racing Carnival and enjoying a flutter on the horses will no doubt have been spending some time studying the form guide and analysing the odds.
Considering the odds is the most important factor for punters when placing their bets. For example, if the odds are just 1:1 there is no point even backing a 'sure thing', as of course there is no such thing as a sure thing.
The same concept of odds can be applied to an investment in the share market. As an investor you may identify a 'sure thing', in terms of a great company with great prospects, such as Domino's Pizza Enterprises Ltd. (ASX: DMP). However, if all the future cash flows have already been priced into the share price then the odds are not in your favour.
Here are three stocks where arguably the odds are in investors' favour at current prices.
SAI Global Limited (ASX: SAI) share price has fallen since potential acquirers were shown the door. With the stock now trading well off its 52-week highs and with analysts forecasting solid growth in earnings over the next two years, now could be an opportune time to purchase this niche company.
Macquarie Group Ltd (ASX: MQG) looks an appealing bet for investors. With average growth over the next two years forecast to be roughly in line with the market average, there would appear reasonable grounds for the investment bank to surprise on the upside as global markets continue to rise.
Asciano Ltd's (ASX: AIO) business is forecast to achieve earnings growth of 14.7% and 6.3% over the next two years according to the analysts' consensus estimates. This suggests the rail freight and ports operator is trading on a price-to-earnings ratio in FY 2016 of 14.4x which is very undemanding considering the quality of the group's assets.
Just as there is no point backing a winning horse if the odds aren't in your favour, there is little point backing a winning company if the risk-reward trade-off doesn't stack up. The three stock ideas above could all turn out to be winners for your portfolio, but there is one stock above these three I'd be looking to back first.
