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Why are these 4 ASX shares so CHEAP?

The Vocus Group Ltd (ASX: VOC) share price, Telstra Corporation Ltd (ASX: TLS) share price, National Australia Bank Ltd. (ASX: NAB) share price and Mantra Group Ltd (ASX: MTR) share price appear too good to be true.

Dividends + Growth

When an investor thinks of an ideal investment it usually does two things:

  • Provides a reliable income stream (e.g. dividends)
  • Grows over time (e.g. share price increases)

However, because we are taught to think that these opportunities are rare, when we finally come across them we can be slow or even fearful to act.

The best way to understand the opportunity is to focus on the risks and see if they have any merit.

Vocus Group

Vocus is the owner of a number of telecommunications brands, including Dodo, iPrimus and much more. The company’s share price is down 61% in a year. The catalysts behind the selloff include the ongoing rollout of the NBN, which is creating some uncertainty for all telecommunications providers; a management reshuffle and the digestion of many acquisitions.

However, at today’s prices, the company could be a long-term opportunity for savvy investors who acknowledge and understand these risks.

Telstra Corporation

Telstra shares have also been sold down to the tune of 21% in 12 months, and are now forecast to pay a dividend of 7.3% fully franked.

Following a decision by TPG Telecom Ltd (ASX: TPM) to invest heavily in a new mobile network, investors have become concerned about Telstra’s key mobiles business. However, the full rollout of TPG’s low-cost mobile network is still a few years away and likely to appeal to the budget conscious consumer, which are targeted by Vodafone and Optus.

NAB

At today’s prices, NAB shares have a big dividend of 6% fully franked and trade on a price-earnings ratio of 13.7x. Those numbers might appear very tempting to some investors.

However, it is important to remember that banks are very cyclical, with their profits and even dividends subject to economic conditions. Therefore, during positive market environments, they often appear cheap because investors discount their valuations for the cycle effects. 

This risk is not unique to NAB but all banks, and it’s important to understand.

Mantra Group

Mantra Group is the owner of BreakFree, Peppers and Mantra hotels and resorts. Investors believe that the threat of Airbnb is significant to the company, which it could be.

However, I find it difficult to think that the company should continue to fall much below its current share price of $2.90. The Mantra share price is down 24% in a year and is forecast to pay a 4.2% fully franked dividend.

Foolish Takeaway

In my opinion, balancing risk and value is the only way to produce superior investment returns over time because there will always be risks to any business. The best time to go in search of compelling investment ideas is when fear has taken hold of the market or investors are overly bearish on one particular company or industry.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of National Australia Bank Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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