In the US stock market, top companies may have share prices of hundreds of dollars, but about 40% of the companies in the S&P ASX 100 Index (ASX: ^XTO) are under $5. Investors who are just starting out can open a position or set up a multi-stock portfolio for a relatively small amount of money for quality companies. Here are three under $5 that have done well in the past, and should carry that on into the future.
Adelaide Brighton Ltd. (ASX: ABC) $3.62
An integrated supplier of cement and lime, premixed concrete, aggregates and concrete products with operations nationwide, it has a steady base of earnings that have been growing over the past 10 years.
An upturn in the housing market will have a knock-on effect for construction, and this company provides the very foundation of what builders need. Return on equity and net profit margin were 15.3% and 13.1% respectively in 2013, in line with previous years, which shows the stability of the business.
Its PE is 15 and the dividend yield is 4.56%. NPAT was $154.1 million with long-term debt only $299.3 million, so the balance sheet is not overburdened at a 36% gross gearing.
Beach Energy Limited (ASX: BPT) $1.37
This oil and gas company has assets in six countries, but its Cooper/Eromanga Basin flagship operations are attracting a lot of attention for oil production and unconventional gas development.
The LNG export industry is preparing for a 2015 start, and major oil and gas companies are in the region getting ready for the overseas business. The company has a joint venture with Santos Limited (ASX: STO), to develop new wells together, and also works with Chevron Corporation (NYSE: CVX) and Senex Energy Ltd (ASX: SXY).
NPAT has more than doubled in the past two years from $65.4 million to $140.7 million. Net profit margin is 20% and its NPAT is now greater than its long-term debt, showing the cash generation it is achieving. Its PE is 12.7 and the dividend yield is 2.01%.
In the first quarter of 2014, it set a new oil production record of 1.3 million barrels and a record 1.6 million barrels in net oil sales.
Goodman Group (ASX: GMG) $4.63
The integrated property group has assets in Asia, Europe, the UK, North America, Brazil, Australia and New Zealand, and operations covering fund management, property services and development management.
It took some very heavy write-downs in 2009-2010 after the GFC, and earnings have been working back up with NPAT rising from $306.9 million in 2011 to $566.4 million in 2013. As a real estate investment trust (REIT), is has a manageable amount of long-term debt, $2.56 billion, which is less than five times its most recent NPAT.
Due to its wide geographical diversification, it can invest in properties in markets that have not fully recovered from the GFC, thus having the potential to buy at discount, and then will benefit from price appreciation as the world economy in general improves.
Its PE is 14.2 and the dividend yield is 4.19%.
Foolish takeaway
Finding good value at reasonable prices is a good goal, yet it takes time and research to do it well. The next business report of a company could have great gains, or it could hold delays and setbacks. Be ready to take advantage of both, yet lean towards companies that have exhibited strong and consistent past growth.
