When investing, it’s important to put your emotions aside and focus on long-term outcomes. Too many investors get sucked into buying companies without conducting their due diligence.
No matter what company you buy, whether it be the biggest and most well-known in the S&P/ASX 200 Index (ASX: XJO) (^AXJO), or a tiny tech-stock, you must do your research before committing to a trade. Otherwise your chances of losing money in the stock market are dramatically increased.
For example, many investors would know Australia and New Zealand Banking Group (ASX: ANZ) is a top dividend stock with a reputation for quality service thanks to its outstanding business model. However, at current prices it is not a bargain because its share price is being bolstered by extremely low interest rates and small amounts of bad debts. When these figures are at their highest – not their lowest – is when you should go on the hunt for bank stocks because that’s when they are perceived to be more dangerous and therefore trade at much cheaper levels, offering more bang for your buck.
When buying stocks, it’s important to differentiate between price and value because it’s not low share prices alone that make a stock a bargain. Price is what you pay, value is what you get. Just ask investors who bought Newcrest Mining Limited (ASX: NCM) this time last year, when its share price was on the way down. I bet they were thinking it was a bargain. The company continued to fall over 44%. Ouch! However the good news is, it is slowly raising itself from the ashes and restructuring its business model. With a more efficient business, costs per ounce of gold produced are now lower and if the spot price continues to claw its way back, shareholders could be rewarded with handsome capital gains.
It’s fair to say, the value derived from Newcrest’s share price today is greater than what it was a year ago. But could the same be said for Ardent Leisure Limited (ASX: AAD)? Its share price is up 76% on the back of strong EBITDA growth across all divisions except its marinas business. It could just be that Ardent – the owner of Dream World, White Water World, Goodlife Health Clubs, AMF and Kingpin Bowling and Main Event – is still worth buying at today’s price. Over in the US, Main Event is rapidly expanding and is showing signs of a being a great long-term earner for the company. To top it all off, it pays a reliable dividend, forecast at approximately 5% in FY14.
Lastly, Shine Corporate Ltd (ASX: SHJ) is a small-cap legal stock with growing nationwide exposure. It’s built a reputation for success thanks to its impeccable win-rate throughout Queensland. Its recent listing on the ASX has given investors the opportunity to grab a piece of the company as it seeks to grow its brand throughout the country.
At today’s prices ANZ is too expensive to warrant a ‘buy’ rating, given only modest earnings growth can be expected in FY14. Newcrest could be about to turnaround but it won’t be smooth sailing by any means. Ardent Leisure and Shine are two companies which are looking increasingly likely to bring greater shareholder wealth in the long-term.