Growth stocks have been sold down over the last week as the market senses the Reserve Bank’s modest bias to an upward revision of interest rates when it makes its next move.
Interest rates and inflation generally move together and forward looking markets have marked down growth stocks like SEEK Limited (ASX: SEK), REA Group Limited (ASX: REA) and XERO FPO NZ (ASX: XRO) as anticipated returns and valuations become more aligned to the macro-economic environment.
Stocks that offer value with potential for profit and dividend growth above inflation will produce the best returns over a five-year time horizon from now.
One to consider is Westfield Retail Trust (ASX: WRT), it trades on a price-to-book ratio of just 0.87 as investors appear down on the commercial real estate market and an upcoming corporate restructure involving the business. Selling for $3.06 it offers an attractive yield of 6.6% and looks cheap compared to future prospects.
The Westfield Group (ASX: WDC) is valued higher on a price-to-book ratio of 1.45, but given its leverage to large and improving economies in the U.K. and U.S. this is reasonable.
Its been realigning itself strategically over the last year, dumping non-core shopping centres in the U.K. and U.S. to focus on its plan to own iconic retail destinations across the world’s major cities.
That dumping of lesser assets to raise capital looks a great move and with an attractive yield, quality management and discounted shares it looks a very solid buy.
Generally considered a growth stock, telecommunications services business M2 Group Ltd (ASX: MTU) now looks to be offering value also. Selling for $5.67 it’s trading on a price-earnings of 11 based on forecast earnings-per-share of 51 cents for FY 2014. The recent interim dividend was up 15% on the prior year and it yields a fully franked 4%.
Outdoor apparel retailer Kathmandu Holdings Ltd (ASX: KMD) sells for $3.44 and trades on a price-earnings of 18 based on analyst forecasts. It’s steadily expanding in Australia and New Zealand but its big opportunity lies elsewhere.
With no store costs and no staff costs shipping goods bought online to overseas buyers is an extremely profitable operation. If management is able to develop the brand and online presence globally, there’s a massive, bottom-line bulging market waiting to be won. If victorious, Kathmandu’s share price may go for a hike of its own.
All four of these businesses look to be decent buys at current prices, in particular the Westfield businesses offer greater security alongside value and growth.