Is this a classic case of 'be greedy when others are fearful?'
As reported in Fairfax media this morning, Deutsche Bank strategist Tim Baker said that the amount of cash held in deposits across the entire superannuation system was up to 18% of total assets, nearly double the 20-year average of 10%.
The increase is thought to be due to difficulty in finding shares trading at reasonable valuations, causing fund managers to increase cash holdings rather than risk investor funds on high-priced shares.
With Price to Earnings (P/E) multiples currently at high levels across the ASX in general, this is a legitimate gripe.
Coca-Cola Amatil Ltd (ASX: CCL) shares trade on a P/E of around 20 – higher than the current ASX average of 16.
Wesfarmers Ltd (ASX: WES) – has a P/E of over 20.
Commonwealth Bank of Australia (ASX: CBA) trades on a P/E of 17, while another investor favourite, Telstra Corporation Ltd (ASX: TLS), has a P/E of 16.
There's nothing wrong with a high P/E per se, but investors must ask if a company's growth potential justifies the extra price paid to secure it.
Most of these companies deliver steady, unexciting growth, making it hard to justify coughing up the extra premium required for ownership.
The real challenge for investors is to identify growth stocks at a reasonable price.
Fortunately there are still a few floating around, with FlexiGroup Limited (ASX: FXL) still trading on an appealing multiple of ~12, with good growth potential and a fantastic 4.7%, fully-franked dividend.
FlexiGroup conducts equipment and software leases to a variety of customers in a variety of environments. Just recently Flexi acquired Telecom Rentals New Zealand, making it the largest sole supplier in NZ.
Management also continues to extend Flexi's lead in the Australian market, and company earnings are expected to grow by 10% this financial year.
Another company that I think is a solid buy at today's price is Ainsworth Game Technology Limited (ASX: AGI), which trades on a P/E of ~14 and pays a 3.9% fully franked dividend.
Recent struggles in the Australian market saw Revenue and Net Profit decline 8% and 3% respectively in February's half-year report, but the decline is concealing massive growth in the US and South American markets.
With the Australian sector becoming a smaller contributor of overall revenue, foreign earnings become ever more relevant and revenue growth of 47% in North America and 63% in South America is not to be sneezed at.
Ainsworth could well be headed north from its current price of $2.63.
So while it is definitely important to maintain a sturdy cash balance, there are plenty of buying opportunities still out there – don't let the reluctance of others stop you from putting your cash in the market.
