Mr Market can be a strange fellow – he could quote you prices that are too high relative to the intrinsic value of a stock or vice versa depending on his mood. The hallmark of value investing is to buy a stock when there is a significant margin of safety – a good price discount to the stock's intrinsic value. Below are three stocks where Mr Market has continued to quote a string of lower prices into 2015 – are they too cheap to ignore?
Ardent Leisure Group (ASX: AAD)
Weaker-than-expected US data prints last week spooked investors in Ardent, a provider of family entertainment and health clubs operating in Australia and the US. Whilst the stock has recovered slightly it's still down over 5% this year to trade at $2.73.
The stock was a market darling last year after posting exceptional EBITDA growth from its US Main Event Entertainment sites. Despite weaker economic data the recent steep falls in oil will significantly buoy household finances, supporting discretionary spending. With three more sites due to be opened by the end of 2015 financial year and more than a dozen potential sites being reviewed, this segment could continue to provide robust growth in the future.
Considering that Commonwealth Bank recently rated the stock a buy with a $3.30 price target, now might be a good time to jump in.
Flexigroup Limited (ASX: FXL)
Poor consumer sentiment is weighing on Fleixgroup with the stock trading at $2.98 – down over 30% since September. This is mostly due to its significant exposure to bricks and mortar retailers via its no interest ever (Certegy) financing plans and interest free cards.
Acknowledging this the company is looking to diversify into other merchants and industries such as rental bonds, health and aged care products. This is a good move given widely cited issues with housing affordability that are pushing away first homebuyers, and strong fundamentals supporting the healthcare industry.
The biggest upside however is likely to come from the potential purchase of GE Money – General Electric's consumer lending arm in Australia & New Zealand. Final bids were tendered late December and according to the Business Spectator, Flexigroup is the party to beat. If a deal eventuates a raft of synergies are expected to be extracted.
Japara Healthcare Ltd (ASX: JHC)
Payroll underpayments and general concern around healthcare funding from the government has weighed on Japara since December, when it traded as low as $1.89. Although Macquarie bank is reported to be baffled by the price action, the stock has only recovered some of its losses to trade at $2.
As mentioned earlier the healthcare sector is well supported by strong fundamental factors. Japara is likely to be a strong performer given its focus on providing specialised care (i.e. dementia patients). Disability is set to be more prevalent with our rapidly aging population and dementia is slated to be the country's number one disability by 2016.
Despite the dramas the company has reaffirmed its FY15 earnings guidance. Analysts on Yahoo Finance have also placed a median price target of $2.52.
