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Should you buy these beaten down ASX shares?

In the last three months the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has had a reasonably disappointing time and fallen approximately 1.2%.

Unfortunately this decline is nothing compared to what some shares on the index have endured. The two shares below have fallen especially hard during this time. Will they bounce back?

The Myer Holdings Ltd (ASX: MYR) share price has fallen 29% in the last three months due to weak trading conditions and concerns over the impact Amazon will have on its business. While data released yesterday by the ABS revealed that Australian retail sales improved in May ahead of expectations, sales in the department stores category once again declined. Whilst Myer’s shares are arguably dirt cheap at 9x trailing earnings, I do have concerns that this could ultimately prove to be a value trap. For this reason I would stay clear of the retailer no matter how tempting it is.

The Sigma Healthcare Ltd (ASX: SIG) share price has tumbled 30% during the last three months. The catalyst for this decline was the pharmacy wholesale and distribution company’s decision to take legal action against one of its biggest customers. Sigma was forced to take legal action after The My Chemist/Chemist Warehouse Group advised of its plan to source certain products from a different supplier. Doing so would impact Sigma’s EBIT by between $5 million and $10 million per year according to management. Whilst this is bad, my biggest concern is that its contract with MC/CW expires in 2019. At this stage I feel it is very unlikely that it will be renewed, leaving Sigma with a sizeable gap in its future earnings. Because of this I would hold off an investment.

Instead of investing in Myer or Sigma, I would suggest investors take a look at this quality dividend share.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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