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4 stocks that scare investors… but could be an opportunity

Australia’s stock market is undervalued. The mining boom isn’t the only industry that has been ignored by investors. The market’s underwhelming expectations for many Australian stocks this reporting season have left investors focusing on short-term profits, rather than taking the opportunity to snap up a good company.

However, savvy investors are grateful for some of the opportunities Mr Market is dishing up. Here are four stocks that represent good value, but have managed to fly under the radar of many investors.

Implantable hearing device manufacturer Cochlear (ASX: COH) has recorded an ordinary year in terms of share price. It has suffered a number of big blows to its trading levels, particularly since it announced a reduced profit guidance earlier in the year. However, with the release of its newest device, the Nucleus 6, revenues and profits will once again begin to pick up and investors could reap the rewards.

Taking advantage of the baby boom has never been easier than with Challenger (ASX: CGF). The company offers fixed income annuities for individuals looking for financial security in retirement, as well as funds management. The company looks has forecasted 69% of retirees to be baby boomers by 2030. This will take the amount in retirees’ superannuation accounts from $1.5 trillion to $6 trillion and give companies like Challenger massive room to grow their business. Paying a 4.3% dividend the company could provide solid long-term growth and income.

As a mining-related company, Leighton Holdings (ASX: LEI) has had to deal with poor investor sentiment affecting its share price. Investors should be worried about the future of many mining services stocks, but not this one. Its offshore divisions have won huge contracts in the past week and the company operates a number of businesses outside of mining services that have only now started to get back on their feet after a few poorly designed and estimated projects including Victoria’s Desalination plant and Brisbane’s Airport Link. The company operates on 11 times earnings and pays a 5.2% dividend.

The last company yields a dividend of 9.5% when grossed-up. Despite its attractive return, the poor market conditions surrounding Myer (ASX: MYR) has meant its share price has struggled. With consumer confidence low and interest rates yet to take an effect on the market, the company trades on a P/E of 11 and presents a strong upside for investors.

Foolish takeaway

These four stocks provide investors with good dividend yield and a point of differentiation in portfolios. Although there are no prizes for being unique, the words of Warren Buffett are reassuring for investors who are cautious to commit to a purchase: “Be fearful when others are greedy and greedy when others are fearful.”

These stocks are promising income ideas but they’re not the best we’ve come up with. Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Owen Raszkiewicz owns shares in Cochlear, Challenger and Leighton Holdings.   

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