Every day the market gives us new prices for stocks that we can either accept or ignore. Sometimes the prices are pushed up by overly optimistic views of a company, while other times they are attractive bargains because the market is down on an industry or is in the midst of a sell-off itself.
In between those extremes, we have to judge the value of what we are buying compared to the money we are giving. For any item or service, you have to be familiar with it to make that judgment.
With stocks, you are trading your cash in hope of more coming back in return later on. Buying quality companies that are built upon steady growth gives your money the best chance to return to you multiplied.
The building materials company Fletcher Building Limited (ASX: FBU) has a PE of 18, which is lower than some of its industry peers like CSR Limited (ASX: CSR) or James Hardie Industries plc (ASX: JHX). In addition to residential home construction, many of its products are used in infrastructure development, so it gains during a housing boom and when roads, tunnels, and commercial properties are built.
It has a dividend yield of 3.7% and showed 9.3% EPS growth in 2013. Its recent half-year result had a 24% gain in EPS compared to the first half of FY2013 and the second half is usually stronger than the first. That points to good growth potential. Both earnings and its earnings multiplier may grow to make a larger share price.
Amcor Limited (ASX: AMC) has been a steady climber since 2009 and over the past 12 months has climbed almost 20% in share price. The packaging manufacturer has operations in Australia, New Zealand and the US. It has a $12.4 billion market capitalisation even after the demerger of Orora Ltd (ASX: ORA).
Its EPS growth in FY2013 was about 9%. FY2014 first-half earnings were up similarly, so its potential makes the current 16 PE look relatively small in comparison. The 3.8% dividend is the icing on the cake.
Foolish takeaway
These two look comparatively cheap judging from the near-term growth they have achieved. Both are large companies that have the financial strength to build upon that for years to come.
