As they say, 'one man's trash is another man's treasure'.
Which means that whether you see trash or treasure depends entirely on where you're standing.
The investors selling out of the three stocks in this article have their feet planted firmly in the first camp.
Here's why they're wrong.
Ainsworth Game Technology Limited (ASX: AGI) – last traded at $2.99, down 28% for the year
Ainsworth's back for the umpteenth time after hitting an intra-week low of $2.92 before rebounding to $2.99 late yesterday.
In addition to disappointing with slow growth (if you can call 20% 'slow'), some of the decline in investor sentiment may be due to a reduction in interests of founder Leonard Ainsworth, who sold 253,000 shares in the lead up to the release of the annual report.
It's worth noting though that other directors have been buying shares while they're cheap, with Daniel Gladstone increasing his shareholding by a fifth and David Macintosh increasing his by a quarter.
With no material change in the company's prospects I think that the market has got Ainsworth wrong, and the company is at the top of my 'buy' list next pay-check.
Crown Resorts Ltd (ASX: CWN) – last traded at $14.08, down 9.3% for the year
Shareholders are apparently jumping ship after Crown recently announced an agreement with the Victorian Government that could see the company pay as much as $700 million to the state in return for more favourable licensing conditions.
In return for the shredding of the 'super tax' on international/VIP gambling and an increase in the maximum number of operational gaming machines, Crown will pay the government $250 million once the relevant legislation becomes effective and another $250 million in 2033.
If normalised gaming revenue grows by more than 4% per annum (compound) between FY14 and FY22 Crown will be required to pay $100 million in FY23, as well as a further $100 million if revenue growth exceeds 4.7%p.a.
While these are not small figures for a company earning $655 million in profit this year, a 4% increase to revenue and profit every year sees the company earning nearly $900 million every year by FY23, which is not a poor outcome.
Better yet this does not consider the effect of reduced taxation and the high likelihood of Crown's profits growing faster than revenue.
Investors are foolishly (lower case 'F') selling out on the short-term costs instead of buying greater long-term prospects.
JB Hi-Fi Limited (ASX: JBH) – last traded at $15.49, down 25.5% for the year
With OrotonGroup Limited (ASX: ORL) recently showing investors that a subdued retail environment can still deliver excellent performance, it is perhaps no wonder that the market has been selling JB Hi-Fi in favour of other retail shares like competitor Dick Smith Holdings Ltd (ASX: DSH), which reported similar performance but trades on a lower earnings multiple.
Investors may also be aware of the risks associated with buying JB Hi-Fi – a consumer discretionary stock – given the potential for an upcoming slow-down in the Australian economy.
With a number of long-term factors working against the company, it is not an attractive buy despite robust performance this year and I would not be surprised to see JB Hi-Fi trend lower over the coming weeks.
Thankfully investors aren't strapped for choice in current market conditions, and both Ainsworth and Crown represent a buying opportunity.
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