Last week saw a tech shakeout begin on Wall Street which flowed over to Aussie stocks. Despite the broad based selling on Thursday and Friday, it’s important to keep the volatility in perspective. Not only did the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) manage to crack the 5,500 mark during the week, a level the index was last at in mid-2008 but over the full five days of trading last week the index actually finished up 0.11%.
Last week’s volatility and some of its major movers highlights to investors the opportunities which abound in the stock market. Echo Entertainment Group Ltd’s (ASX: EGP) 14.4% surge is a reminder to investors of the advantage of patiently buying and holding undervalued stocks. The casino operator has been on the nose with investors ever since Crown Resorts Ltd (ASX: CWN) lobbed its bid to compete in the Sydney market. Echo’s problems have (arguably) been more than reflected in its share price and last week’s positive market update of a 5.7% rise in normalised revenue over the March quarter has helped kick the share price higher.
Meanwhile Magellan Financial Group Ltd (ASX: MFG) fell 12.4% last week which on the face of it may look bad however in reality it could well be an over-reaction. Magellan has a superb long-term outlook and while its exposure to US stocks naturally means it is affected by shifts in sentiment for US equities, the fund manager’s history of outperformance stand it in good stead.
The ‘ugly’ from last week was Coca-Cola Amatil Ltd’s (ASX: CCL) shock 15% downgrade to earnings before interest and tax which comes just weeks after the beverage maker released its full-year results. The profit downgrade corresponded with an announcement that newly installed CEO Ms Alison Watkins will lead a comprehensive strategic review of the group.
Just as Magellan is arguably more appealing now that its share price is 12.4% lower, despite the ugliness of Coca-Cola Amatil’s downgrade there is reason to be positive on the stock now that its selling for 12.2% less than it was. Likewise despite the jump in Echo’s share price, the positive quarter and the fact that the share price is still down 26% in the past year means there could still be plenty of upside for investors from this point.
Smart investors know it’s important to remain focussed on determining the value of a stock and use the price action which can result from good, bad and ugly volatility, to buy when the price is below their determination of value.
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Motley Fool contributor Tim McArthur owns shares in Echo Entertainment Group Ltd.
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