2 cheap stocks you can buy today

August was a tough month for stock market investors. But where some see battered portfolios, we see opportunity, including 2 cheap stocks you could buy right now.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

August was a tough month for stock market investors. But where some see battered portfolios, we see opportunity, including 2 cheap stocks you could buy right now.

Farewell August, good-bye winter. You've left us with bare trees, and battered portfolios.

Or have you?

The S&P/ASX 200 index finished August down 2.9%, hardly a portfolio shattering experience…except if you panicked and sold just at the wrong time.

You didn't, did you? We told you to remain calm. We even told you, rather than selling, you should start buying stocks. We hope you picked up a bargain or two.

Over and out

All that is in the past. As for the future, as ever, it remains uncertain.

If you believe in horoscopes, and fortune-tellers, you might remain nervous…September is historically a weak month for the U.S. market. And where Wall Street goes, puppy dog Australia follows.

Call us old fashioned, but rather than relying on divine intervention, we prefer to invest in good companies trading at cheap prices.

In this day and age of instant news, volatile share prices, and gold-fever, such a strategy might seem so old fashioned, so quaint.

We're happy to tread our own path. When we see a crowd, we run the other way. We're very happy to leave the gold bugs to their own devices. We wish them luck. They'll need it from here.

Resources save the day

The end of August also heralds the end of the reporting season.

The Australian Financial Review lead with the headline "Resources profits save reporting season", saying "the performance of the resources sector hides the negative impact on earnings for industrial stocks from higher interest rates and the rising Australian dollar".

Here at The Motley Fool we've long been cautious on the local economy. House prices are too high, the cost of living is too high and the high Aussie dollar is killing manufacturing, exporting and in-bound tourism.

Yet at the same time, courtesy of the mining boom, interest rates remain high relative to the rest of the developed world.

It's no wonder consumers are saving and not spending.

Pigs in poo

Gerry Harvey of Harvey Norman (ASX: HVN) reckons Australians, with our low unemployment and resources boom, should be "as happy as pigs in shit".

Unfortunately for Gerry, and the beleaguered share price of Harvey Norman, "shit" doesn't pay the electricity and water bills, the rates, and food.

Whilst resources company profits were supposed to have saved the reporting season, resource company share prices did the opposite.

The top 10 drags on the S&P/ASX 200 index in August were lead by BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO). So much for BHP's record $US23.9 billion profit then. Other resource companies in the top 10 included Woodside Petroleum (ASX: WPL), Alumina (ASX: AWC) and OneSteel (ASX: OST).

Growth companies

Whilst the retail, resources and banking sectors get most of the coverage in Australia, believe it or not, there are other companies out there too. Some are even growing.

We asked our man on the ground, Motley Fool Investment Analyst Dean Morel, what piqued his fancy in August. Over to Dean…

A good business getting better

The market's reaction to M2 Telecommunications' (ASX: MTU) earnings piqued my interest. M2 nailed earnings, but revenue disappointed.

With M2 down 6% after earnings, it appears investors are looking at a glass half empty. The sluggish revenue growth masks the quality of earnings.

The market appears to be focusing on the revenue miss and low revenue guidance. I think the market is wrong, and is underestimating the strength and quality of M2's earnings.

M2 blew away my earnings and dividend expectations – up 52% and 80% respectively. The low revenue guidance is due to the elimination of low wholesale margin business – so no big deal.

Operational efficiencies drove the excellent earnings in 2011 – that's a big positive. Further business improvements are expected to increase EBITDA margins by 33% in 2012. I see a good business getting better.

An expensive lesson

Matrix Composites & Engineering (ASX: MCE) earnings also caught my interest, though sadly for investors, not for good reasons. Matrix earnings disappointed, its cash flow remained weak and most importantly its order book fell precipitously.

I warned investors back in February to take their profit and look for an investment with better margin of safety. I hope some did, and those who didn't learnt you seldom profit betting on everything having to go right.

The key takeaways are don't fall in love with your winning investments and don't extrapolate short term performance into the future.

Growth on steroids

Specialty Fashion Group's (ASX: SFH) share price fell after earnings, and continues to trade lower.

I advised we'd remain spectators until after Specialty reported. The market reacted to the poor earnings as I thought likely, despite Specialty having pre-announced results.

The market often is often slow to react, especially in the small cap space, and only wakes up after a second hit over the head.

With no surprises in its earnings and a clear turnaround strategy, I'm considering adding Speciality to my personal portfolio. Motley Fool readers will be the first to know.

My Foolish bottom line remains unchanged. If management successfully executes a turnaround, investors will be well rewarded. Growing earnings combined with improving sentiment is the secret sauce to share price growth on steroids.

Wipe out

Finally, Billabong International's (ASX: BBG) share price fall of over 30% piqued the interest of our Lead International Analyst, Tim Hanson.

Billabong's results were poor and the retail environment remains challenging. Management blamed the poor result on a range of external factors.

My view is they should look a little closer to home. Borrowing to pay inflated prices for acquisitions and moving into low margin retail operations makes me concerned whether management can efficiently run this business. I will buy their clothes, but am not yet tempted to buy the stock.

The Foolish bottom line

Overall earnings seasons here and in the U.S. has not changed my view on markets.

Overall, companies outperformed as I predicted, and the big picture remains intact. The share market is most likely to trade higher this year.

As I tweeted yesterday, investors should assume "the invisible hand" is present. Market falls caused by sentiment should be viewed as buying opportunities – @TMFusion.

The next market crash

Thanks Dean.

So is there another market crash around the corner? Probably.

But rather than worrying about it, letting the fear of a crash paralyse you, the best you can do is to be prepared. On that note, you might want to click here to sign up to receive our special free report Read This Before The Next Market Crash, just in case…

Until next time, stay Foolish.

Of the companies mentioned above, Dean Morel has an interest in M2 Telecommunications. Bruce Jackson has an interest in BHP Billiton. The Motley Fool has a very visible disclosure policy.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »