The Motley Fool

2 top stocks I’d buy before Medibank Private Ltd

I can’t remember the last time I made a mistake and was rewarded with 20% in capital gains in less than two months.

Step in, Medibank Private Ltd (ASX: MPL).

MPL vs XJO
Source: Google Finance

In little over a month, my retail investment in the Medibank IPO – capped at $2.00 per share – is up a whopping 20%.

So what I thought turned out to be a brain fade investment decision, has actually been my best performer over the past 50-ish days.

For the record, I still haven’t sold my shares (see my disclosure below). Well, to be honest, I haven’t been able to thanks to a technical error on my broking account.

Fortunately, that’s now resolved and has probably made me money.

However at $2.40 per share, or 25 times next year’s profits, Medibank is looking like a sell. Especially when I consider it’s only going to pay a single dividend of 4.9 cents per share in 2015, equivalent to a 2% yield (it won’t be until 2016 that Medibank pays its second distribution).

So I doubt many investors will be falling over themselves to get into the stock. However with interest rates so low, I’ll probably have to keep my money in shares if I do decide to sell.

And two cheaper growth stocks firmly on my radar, to which I could redirect my Medibank funds, are Ansell Limited (ASX: ANN) and G8 Education Limited (ASX: GEM).

Respectively, they’re expected to pay dividends equivalent to 2.1% and 4.1% in 2015. However it’s their growth potential which makes them a compelling prospect for new money.

Over the past five years, they achieved average total shareholder returns (dividends plus capital gains) of 18.6% and 87.6%. Whilst growth may be more modest in the years ahead, I believe they could go on to make far better returns than Medibank from today’s prices.

5 stocks under $5

We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.

And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!

*Extreme Opportunities returns as of June 5th 2020

Motley Fool Contributor Owen Raszkiewicz owns shares of Medibank Private. You can follow Owen on Twitter @ASXinvest.

Related Articles...

Latest posts by Owen Raszkiewicz (see all)