One finger lickin' good stock idea for this rising sharemarket

About Latest Posts Bruce JacksonBruce co-founded The Motley Fool UK in 1997. Now back in his native Australia, Bruce is …

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Although the ASX is lagging other markets, it has been a good start to 2012 for investors. The Motley Fool's advice is to remain humble, yet take the opportunities when they come, like this out of favour stock.

If there's one thing we've learnt in our long investing careers, it's that complacency and over-confidence has a nasty habit of coming back to bite you.

We're enjoying the sharemarket rally, but mindful danger can lurk around every corner. Just ask investors in David Jones (ASX: DJS), White Energy Company (ASX: WEC) and Kagara (ASX: KZL).

Who Wants To Be A Billionaire?
You may have heard about Australia's two-speed economy – miners and the rest of us.

The rest of us are struggling, no doubt about it. But lest you think the Reserve Bank of Australia is going to ride to our rescue and slash intertest rates, you might want to think again.

Governor Glenn Stevens, recently said…

"Some sectors of the economy will grow in importance as they invest and employ to take advantage of higher prices. Other sectors will get relatively smaller. Structural adaptation is hard work. Few volunteer for it. But we have little choice but to do it."

Billionaire retailer Solomon Lew obviously disagrees. The Age reports the chairman of retail group Premier Investments (ASX: PMV) – owner of brands including Just Jeans, Portmans, Peter Alexander, Dotti and Smiggle – as saying…

"I really believe the RBA has mishandled the mining boom to the great detriment of the non-mining sector, in particular retail…We do need an interest rate cut immediately. I'd be calling on the RBA to cut interest rates by 50 to 75 basis points at the next meeting and I think that the Australian economy is in trouble."

Should we just add him to the increasingly long list of billionaires crying foul? Gerry Harvey, Clive Palmer, Gina Rinehart, Andrew Forrest. If ever proof was needed that money doesn't bring happiness…

Adapt Or Die
Glenn Stevens is going to win this particular argument. His message to the Solomon Lews of the world is effectively 'adapt or die'.

And to be fair, Premier Investments is investing in its online stores, and is expanding into Asia, and is closing under-performing stores, all the while struggling through this incredibly tough environment for all Australian retailers.

As to whether they'll be successful, or whether it's more the slow-to-adapt Australian retailers that are in trouble rather than the greater Australian economy, time will tell.

What Goes Down Must Come Back Up
Speaking of time, and a stock that's very much on our radar, we read with interest an article in The Australian Financial Review on the Queensland economy…

"But what goes down in economics generally comes back up and the Queensland economy will be no exception. The European crisis may have delayed that recovery but the revival of global confidence and activity in 2012 should see the Queensland economy sparkle through most of Campbell Newman's first term."

Motley Fool Share Advisor analyst Dean Morel loves discovering hidden gems. Whether they be growth stocks like Maverick Drilling & Exploration (ASX: MAD), or value stocks like Telstra Corporation (ASX: TLS), Dean loves a bargain. And he smells one up in the Sunshine State.

Over to Dean…

Finger Lickin' Good
Collins Foods (ASX: CKF) owns, operates and franchises KFC and Sizzler restaurants.

119 KFC restaurants are in Queensland, with just two (in Tweed Heads) in New South Wales. 19 out of their 27 Australian-based Sizzler restaurants are in Queensland.

An opportunity to buy shares at a bargain price may soon occur.

A respected fund manager, Orbis Investment Management, continues to buy Collins Foods, and they now own 17.4 per cent of outstanding shares. They've bought over 60 per cent of shares traded in the last month.

Orbis has been virtually the only buyer of Collins Food. The stock, a recent IPO at $2.50 per share, is seemingly hated and/or ignored by virtually the rest of the investing population.

Imagine how low the price may have fallen if Orbis had not been buying! $1 or less? Now that would be a one-foot hurdle!

We may still get $1, but at around $1.10 Collins is a good two-foot hurdle.

Orbis can only buy 2.6% more of Collins Food stock, so patient investors may soon be rewarded with a great entry price. Naturally there are no guarantees that we'll get a lower price, but the odds are in our favour.

Over the medium term a rebound in Queensland trading conditions should stabilise the business and earnings.

Long Live Retail
Thanks Dean.

Collins Food is not the greatest company in the world, and it's not Dean's best stock for new money. That privilege is reserved exclusively for Motley Fool Share Advisor members. But, Collins Food does seem to offer a decent risk versus reward investing opportunity.

Collins Food won't be the next Maverick, but it could just be the classic contrarian bet for this tough retailing environment. We'll be keeping a close eye on its progress.

It's time to kiss goodbye to the doom and gloom. Don't believe us? The Motley Fool has produced a brand new free report titled Read This Before The Coming Sharemarket Rally. Many shares are cheap. Buying shares in businesses like Collins Food at current prices are likely to do very well in the years to come. The free report has much more…

Bruce Jackson has an interest in Telstra and Maverick. Neither Bruce nor Dean Morel have an interest in Collins Foods. The Motley Fool's disclosure policy is accountable.

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