Should Westpac Banking Corp, Woolworths Limited and Fortescue Metals Group Limited be in your 2015 portfolio?

In the past six months their share prices have been smashed, is this your chance to pick up Westpac Banking Corp (ASX:WBC), Woolworths Limited (ASX:WOW) and Fortescue Metals Group Limited (ASX:FMG) on the cheap?

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The share market is a funny place.

One day, everyone loves Woolworths Limited (ASX: WOW), Westpac Banking Corp (ASX: WBC) and Fortescue Metals Group Limited (ASX: FMG).

Then, six months later, when their share prices are down 19%, 7.5% and 39% respectively, everyone's had enough of them.

Academics will tell you each stock is now riskier than they were before because they've got larger betas. However when a stock price falls, it could be a good time to buy.

For example, let's say you believed Woolworths shares were worth $25 each when their market price was $33. Then the market price falls to $29.45 (which is where they are now), does that really make them riskier? I'd say it's the opposite.

With that in mind, here's my opinion on all of these companies' prospects moving into 2015.

Woolworths

If I was to hazard a guess why Woolies has fallen in the past three months, I'd put it down to concerns over slowing growth, its struggling Masters home improvement business and the increased threat from international giants like Aldi and Costco. I've long been bearish on the two supermarkets for many reasons, but mainly because I believe their private label push has led to disgruntled customers and suppliers. Further Costco will apply top down pressure and Aldi (perhaps even Lidl too) is coming up from the bottom.

That doesn't mean Woolies is about to go bust, far from it. However at above $30.00 per share, it appeared it was priced for significant future growth, something which I don't believe is appropriate. Whilst I'd say its current price is closer to fair value, I'd prefer to pay a price slightly lower than today's.

Westpac

Currently Westpac is where Woolworths shares were six months ago. That is, I think they're slightly pricey given the growth outlook for the business, which will be more constrained than in previous years. In terms of bad debts, the full benefit of falling interest rates has already been recognised by our second largest home loan provider and with little other growth areas, I wouldn't be surprised if cash profit growth comes in around mid-single digits next year.

Indeed consumer confidence is getting hammered, economic growth is slowing and property is coming off a hot streak. But perhaps the biggest threat to our banks is significantly higher unemployment. Currently at 6.3%, economists are tipping the growth in unemployment to slow in the next year. However the government's Mid-Year Economic and Fiscal Outlook (MYEFO) released this afternoon forecast peak unemployment at 6.5% next year.

Accepting risk is part and parcel of successful share market investing but paying a high price is not. With a price to tangible book value over 2.69 times, Westpac shares don't come cheap. So I'll be holding off buying, for now.

Fortescue Metals Group

Down 57% for the year, shareholders of Fortescue Metals are likely ruing their decision to try and capitalise on the falls of the iron ore spot price earlier in 2014. Down from $US135 per tonne this time last year the current iron ore price of $US69 per tonne may seem like an opportunity for savvy investors.

However with Chinese demand growth slowing and huge amounts of fresh supply coming online, there's reason to believe it'll fall further. The government's MYEFO statement is forecasting $US60 per tonne over the coming two years.

Not only is Fortescue's position on the cost curve concerning, it also receives less for its lower grade ore than other miners, such as Rio Tinto Limited (ASX: RIO). Fortescue had an estimated break-even price in the low $US70's per tonne last year and an average realisation percentage of 86%. Meaning if they had the same realisation at today's price of $US69 per tonne, they'd be receiving just $US59.34 per tonne.

So even at today's share price, Fortescue appears a risky bet.

Foolish takeaway

Of the three companies I think Woolworths is most appealing although I'd like to see a lower price before buying in. Westpac is also too pricey for me, especially when I consider its growth outlook. Lastly, at today's prices, I'm completely avoiding shares in Fortescue. I think every investor can guess why.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. You can follow Owen on Twitter @ASXinvest.

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