2 value stocks to consider today

Stocks bolting out ahead in April are driven by strong first-half results and earnings surprises above what the analysts were expecting.

Analysts don’t have crystal balls that tell what stocks will rise the most. Many times they overestimate earnings and the companies under deliver. That can send a stock crashing. The market doesn’t like disappointments, especially when analysts are slow in adjusting their expectations.

Investors who want to grow their wealth need to have in their portfolio companies that predictably accrue earnings without a lot of surprises.

Supermarket and general merchandise retailer Woolworths Limited (ASX: WOW) has increased its underlying net profit every year since 2004. You might think that a big company like this can’t grow quickly. Yet by having good management and knowing its business well, it has grown earnings per share by a median 13% annually over that time.

Putting that together with its 3.8% dividend yield, it’s a fair match with its 18 PE. You may not get a better price unless there was a general market correction. That’s something to hope for!

Its major competitor Wesfarmers Ltd (ASX: WES) might be put in the same basket due to similar businesses, but its numbers tell a different story. It has a larger market capitalisation than Woolworths and it operates businesses like Coles supermarkets and Bunnings Warehouse.

Rather than relying on surprises from our analyst friends, I looked at its past EPS growth. Since 2004 its median annual growth was about half of Woolworths. It has a dividend yield of 4.5% and a PE of 20.  That doesn’t seem like as good growth value to price as with Woolworths.

Sonic Healthcare Limited (ASX: SHL), the medical diagnostics and pathology company, has grown its revenue well and raised EPS a median 11% annually since 2004.

Interestingly, it has an 18 PE and 3.8% dividend yield similar to Woolworths. I would say it is also a fair match of growth value to price, especially since it is expanding into the huge US market and has good potential.

Foolish takeaway

Don’t be surprised by how your stocks are performing. Start off with easily understandable businesses with sustainable growth and you will put together a portfolio that releases you from the market’s surprises.

The top ASX pick you've never heard of...

Top Motley Fool analysts just identified their #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!). Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.