When you are uncertain about a company – and let's face it, there are always uncertainties in investing – you can improve the risk/reward ratio for your investment by demanding a better price. Sometimes you'll even get it, and here are three companies I'd prefer to buy a little cheaper:
Cochlear Limited (ASX: COH)
This hearing aid implant manufacturer has a strong business, both from a Research & Development perspective (it develops innovative technologies that meet patient needs) and from a sales perspective. Sale of a Cochlear implant typically attracts repeat business from customers for several years afterwards, as customers get maintenance and updates performed on their device. Thus for every device sold, Cochlear is guaranteeing itself even more sales in future years due to maintenance and repeat business.
There is reportedly a great unmet need worldwide for hearing aids and Cochlear has an attractive multinational business. The only problem is, I think it is fully priced if not expensive. I'd love to pick up some shares around $100.
REA Group Limited (ASX: REA)
REA Group operates the leading realestate.com.au website in Australia, and owns other digital advertising businesses in south-east Asia, Europe, and the USA. The company's Australian business is largely mature however, and competition from the likes of Domain is heating up. Overseas is where most of the growth is expected to come from, and while the increased digitisation of its emerging markets businesses is very appealing over the next 30 years, I'd prefer to buy REA shares below $50.
Reject Shop Ltd (ASX: REA)
A discount retailer that most readers will be familiar with, Reject Shop 'parallel imports' identical items (e.g. Colgate toothpaste) from overseas markets where they are cheaper (e.g. the Philippines) and sells them locally for a profit. The market doesn't seem quite sure what to make of the business, with the share price fluctuating between catatonically depressed at $6 in 2015 and wildly optimistic at $14 last year.
Speaking for myself I think Reject Shop is starting to look cheap (it pays a 5.4% dividend), but I would get interested below $6.50.
