Many stock market commentators are starting to wonder if the market rally is running out of steam. With the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) up 19.6% in the past 12 months many stocks are looking fully valued if not expensive.
Overpaying for stocks seems foolish to us and something us Fools aim to avoid at all costs. As renowned investor Warren Buffett says: “Rule number one – don’t lose money. Rule number two – don’t forget rule number one!”
With those succinct words of wisdom ringing in our ears here are four stocks that certainly don’t appear to be overvalued and that should be able to grow their earnings over the medium to long term.
Thorn Group (ASX: TGA) is a retailer that specialises in providing financing of goods for its customers. At $2.18 per share the company is trading on just 10.4 times Morningstar’s forecast for financial year (FY) 2014 earnings.
Seven Group (ASX: SVW) is a company not without risk given its exposure to both the resources sector and the free-to-air television market. However at $7.54, if the company can meet Morningstar’s FY2014 earnings per share (EPS) forecast of 97.3 cents per share, then it’s trading on a forward PE multiple of just 7.7.
Vision Eye Institute (ASX: VEI) has already rallied a long way from its low of 27 cents. Today the shares are trading for 83.5 cents. With an increased number of shares on issue, Morningstar is forecasting FY2014 EPS of 7.8 cents which placed the ophthalmic service provider on a PE of 10.7 times.
K&S Corp (ASX: KSC) provides transport and logistics services throughout Australia and New Zealand. It is not a widely followed stock but with guidance provided by management that earnings for the FY2013 to be in line with the previous year the company is trading on a current PE ratio of 9.3 and a dividend yield of over 6%.
Even with a high flying share market there are still undiscovered gems and stocks that fly below many investors’ radar that with careful digging can be uncovered.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.