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3 cheap stocks for smart investors

Picking when to buy a stock after a big price fall is difficult at the best of times. Investors have to be weary of ‘catching a falling knife’ such as now bankrupt companies like Forge Group. But there are always bargains out there for individuals willing to stomach some downside risk.

This year’s August reporting season was generally good, yet inevitably there were companies that didn’t quite live up to expectations. This is where I think there are some potential bargains on offer. Consider the three companies below.

AGL Energy Ltd (ASX: AGK) disappointed investors with a fall in revenue and profit, but importantly announced a rights issue at just $11 per share, or a $3 discount to the price at the time. The $1.2 billion raised will go towards purchasing Macquarie Generation’s low-cost and large-scale power generation capability.

The purchase will make AGL the largest power generator in Australia and means that AGL now generates all power that it sells. The purchase could be massive for AGL as it will reduce group costs over time and impact earnings from next financial year onwards. It also means that AGL is essentially self-reliant, exactly what you want from such a company.

JB Hi-Fi Limited (ASX: JBH) is currently at 12-month lows after reporting earnings that were in-line with estimates but noting that sales in the second half of 2014 had been slower than expected.

Some analysts are saying that the new iPhone and iPad due out later this year could have a big effect on sales (noting that JB always tend to sell them a few dollars cheaper than other retailers). This could be a catalyst for a re-rating if it translates into a pick-up in sales. I think analysts are underestimating the power that JB holds in the market.

Finally, Coca-Cola Amatil Ltd (ASX: CCL) has been a huge disappointment over the past 12 months as the company has been squeezed by the big shopping centres and lost important smaller stockists.

The group’s Indonesian business has also suffered from massive inflation in the country and the new alcohol distribution business hasn’t yet grown to sufficient scale to make a decent impact on earnings. Coca-Cola’s brand name is everything and the new management team is taking its job of turning around this great business very seriously. A nice 4.5% yield should help investors in the interim.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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