MENU

2 phenomenal growth shares trading at a discount

With the market falling and significant uncertainty hovering over the near-term future of the Australian economy, investors want to make sure their portfolio is structured to handle the shock.

One way of doing this is to increase your exposure to defensive shares with strong cash flows and ‘staple’ style products that people spend money on regardless of the economy.

Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) are perfect examples of defensive shares with a majority of their profits coming from food, liquor and petrol sales.

Another way of protecting your portfolio through a downturn is to line up shares that are likely to continue growing earnings regardless of wider economic conditions – thus safeguarding your dividend streams and protecting your capital value.

If you can pick up these shares at a discount, so much the better.

Two prime growth shares trading at a reasonable valuation are FlexiGroup Limited (ASX: FXL) and Collection House Limited (ASX: CLH).

Most consumers will be familiar with FlexiGroup, the company that offers the ability to lease household items with no upfront fees at electronics retailers.

However Flexi also offers no-interest finance, commercial leasing programs, an interest-free credit card, online/mobile payment systems and mobile broadband products in addition to the FlexiRent system readers will be most familiar with.

Its growth has been impressive with FY14 delivering 18% NPAT growth and a 14% increase in dividends. FY15 growth is expected to be slower thanks to higher investment in IT systems, although management predicts a return to faster rates of growth in 2014.

Despite these results the company stubbornly trades in the bottom quarter of its 52-week range, at a modest P/E ratio of 12.1 and paying a dividend of around 5% fully franked.

The major risk with FlexiGroup is a wide-spread actual slow-down in economic conditions (i.e. not just a decline in consumer confidence) that would affect all of its business lines.

However this is a risk for most companies on the ASX and Flexi is not likely to experience disproportionately greater effects from such a slow-down compared to other companies.

Collection House on the other hand may experience rising revenues – at least in the short term – if economic conditions should become unfavourable.

With interest rates as low as they are and high numbers of loans being issued, readers can easily imagine a spike in bad debts when interest rates go up.

This would be great news for Collection House, the debt collector extraordinaire.

Even in the current low-interest rate environment the company is on a seven-year hot streak, having successfully grown revenue and dividends every year for the past seven years with more to come in FY15.

A risk for Collection House is increased competition for debt ledgers which could slow the rate of growth or increase the cost base of purchased debt.

However the company’s ‘one-stop-shop’ model and geographic expansion into the Phillipines and New Zealand will help to counteract this and I expect Collection House to continue growing profits for the foreseeable future.

The best way to grow your wealth?

You want to build wealth by investing in the best ASX shares - companies like Collection House and FlexiGroup - so don't miss The Motley Fool's brand-new FREE guide, "Your 10 Step Guide to Making $1 Million in the Market". This new, free report is packed full of useful advice on the best ways to build your personal fortune! Simply click here to secure your FREE copy.

Motley Fool contributor Sean O'Neill owns shares in Collection House.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.