Peter Lynch’s most famous investment principle was “invest in what you know”, or in the case of these 4 ASX stocks, invest in what you eat.
This simple principle suggests that for those who don’t want to analyse financial reports, or have the time and inclination to learn complex financial ratios, investors should simply make use of their local knowledge and invest in companies that they see and use in normal day-to-day living.
If you’ve ever had a pizza from Dominos, or a coffee and cake from Michel’s Patisserie, eaten a Four’N Twenty pie at the footy, or sampled a bucket of KFC chicken, the following stocks may be of interest to you.
First is Collins Foods Limited (ASX: CKF). The company operates 121 KFC Fast Food stores throughout Queensland and 27 Sizzler restaurants around Australia. It is the owner of the Sizzler trademarks in 68 countries, excluding the US, Guatemala and Puerto Rico.
The company listed on the ASX on 4th August 2011 at $2.50 per share. Since then the share price has fallen to $1.02, due to an unforseen drop in sales, increased competition from other fast food outlets and possibly an overly optimistic listing price. The stock is currently trading on a forecast P/E of around 5. Collins Foods is unlikely to pay a dividend in 2012, but is forecasting to pay out 50% of net profit as dividends from 2013 and thereafter.
Next is Domino’s Pizza Enterprises Ltd (ASX: DMP). Domino’s operates more than 892 pizza stores across five countries including Australia, New Zealand, France, Belgium, the Netherlands and the principality of Monaco. The company announced a 23% rise in net profit after tax for the six months to December 2011.
Domino’s also upgraded its guidance for the full year to June 2012, to be 20% higher than 2011’s net profit. At the current price of just over $9, all the good news appears to be priced in, with the stock trading on a forecast P/E of 25, and a dividend yield of around 2.8%.
If you’ve ever eaten hot takeaway food from a service station, more than likely it was made by Patties Foods Limited (ASX: PFL). Patties manufactures, supplies and markets a range of frozen savoury, dessert and fruit products. This includes Four’N Twenty pies & sausage rolls, Patties party foods, Herbert Adams, Nanna’s desserts and Chef’s Pride.
Patties listed on the ASX in 2006, and in five years has almost doubled net profit from $9.9m to $18.4m. 2012 should be a good year for Patties, with analysts forecasting net profit to be more than $20m. At current prices of around $1.70, it’s trading on a forecast P/E of around 11.5, and paying a prospective dividend yield of around 4.7%, which looks about fair value to me.
Last but not least is Retail Food Group Limited (ASX: RFG). RFG is the Franchise owner and operator of Donut King, Michel’s Patisserie, Brumby’s Bakeries, Esquires Coffee Houses, bb’s café, Big Dad’s Pies and Barista’s Choice amongst others. The company had 1,136 outlets across Australia and New Zealand as at the end of December 2011.
RFG has also recently moved into pizza, with the acquisition of Pizza Capers – 100 gourmet pizza outlets based predominantly in Queensland. The company is currently trading on a forecast P/E of 9.8, and the forecast dividend yield is 6.5%. One thing to watch with RFG is the amount of debt it has. As at 31 December 2011, the company had $79.6m in borrowings, which was prior to paying approximately $30m for Pizza Capers. This compares to shareholders equity of $164m.
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The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. Motley Fool contributor Mike King doesn’t own shares in any of the companies mentioned. This article contains general investment advice only (under AFSL 400691).
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