Suncorp Group Ltd and Fortescue Metals Group Limited: 2 cheap stocks to buy now

Looking for bargain stocks is almost as popular as following growing ones. High flying stocks are being sold at premiums and you still have to worry that the impressive price gains may turn down at some point. They gather momentum, yet for how long?

But investors shouldn’t be just bottom fishing all the time. What seems like a bargain because it has fallen in share price may languish at low prices for a long time. They need to have catalysts of change to reverse their movement.

You can use the advantage you have as a private investor over institutional investors. You can patiently wait for the situation to improve and don’t have to be shaken out of your position because of temporary business setbacks.  They have to hit weekly, monthly and periodic targets of investment gains, or they have to move on to seemingly more profitable stocks to uphold their performance.

Here are two companies that do have catalysts for change and can be bought at low PE prices.

Insurance provider and banker Suncorp Group Ltd (ASX: SUN) is rising in share price towards its $13.75 high it set in November last year. It is implementing changes in its business structure, improving its banking division and has secured excess capital well above its target requirements.

Its PE is 15.6, which is below its historical PE average and it is up about 10% in the last three months.

Fortescue Metals Group Limited (ASX: FMG), the Western Australian iron ore miner, has made great strides in increasing production and reducing production costs.

Recent weaker iron ore prices have taken a little of the sheen off the industry outlook, yet with wider earnings margins, it can make up the difference with higher sales volumes. It is paying down its debt, which will open more funds once paid as interest to be used for capex or possibly flow through directly to earnings.

It’s at a low PE of 5, but miners’ PE ratios are usually low because of the naturally cyclical nature of the industry. Investors should see how costs can be reduced more and watch iron ore prices. Earnings will tell the story.

Foolish takeaway

You have the freedom that many professional investors don’t have – to invest with time on your side. Remember the saying – “It’s not timing the market, it’s time in the market”.

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

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