When it comes to seeking out opportunities in corners of the market that have the potential to harbour undervalued stocks, three sectors jump out: consumer discretionary (otherwise known as retailers), mining services and IT services.
These sectors have all experienced significant headwinds and many companies’ earnings have been squeezed. While this scenario will scare many investors away, it can also be where some of the best opportunities lie.
Sometimes, when it comes to investing in battered and bruised sectors, a ‘basket’ approach to diversify your portfolio can be the best way to go. Here are two stocks from each sector which appear particularly interesting for investors looking to seek out value.
Super Retail Group Ltd (ASX: SUL) and Dick Smith Holdings Ltd (ASX: DSH) have both been lagging the broader S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), but as major market players in their respective retailing segments, their long-term profiles hold appeal.
Bradken Limited (ASX: BKN) and Seven Group Holdings Ltd (ASX: SVW) have suffered from the sell-off in mining services stocks. Both companies have compelling business models which allow them to maintain decent levels of revenues based on commodity volumes rather than price, which could see them perform better than many of their peer group.
Oakton Limited (ASX: OKN) and Data#3 Limited (ASX: DTL) have, like most of their sector peers, been negatively hit by the decline in IT spending. At some point businesses will have no choice but to spend funds on upgrading their technology hardware and software, which ultimately bodes well for the longer term outlook for these two firms.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.