Motley Fool Australia

Top stock picks for May

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We asked our contributors to pick their favourite ASX stocks to buy this month. Here are their top ideas.

Matt Brazier: Vision Eye Institute Ltd (ASX: VEI)

Deep value play Vision Eye Institute is Australia’s largest provider of ophthalmic care with a presence in Queensland, New South Wales and Victoria. The company is emerging from a difficult period characterised by adverse regulatory changes, loss of doctors and indebtedness following an overly aggressive acquisition spree. The debt is now almost completely repaid leaving it with $18 million of free cash flows each year to either reinvest to drive growth or return to shareholders. Trading at an enterprise value to free cash flow multiple of less than 8x, there is potential for the company to rerate in the future.

Motley Fool analyst Matt Brazier owns shares in Vision Eye Institute

Tim McArthur: Paragon Care Ltd. (ASX: PGC)

Admittedly, this stock pick would have been much smarter 12 months ago prior to the near 80% rise in Paragon’s share price, however, even today the stock is worth considering. As a supplier of medical equipment and products (ranging from medication trolleys and beds to surgical instruments) to the hospital and aged care sector, Paragon is well placed to benefit from the forecast growth that comes with an ageing population.

With guidance for the full year of $3.5 million to $4 million at the EBITDA (earnings before interest, tax, depreciation and amortisation) line, the group is set to double its earnings over the prior year.

Motley Fool contributor Tim McArthur owns shares of Paragon Care Ltd.

Andrew Mudie: Ltd (ASX: UBN)

Despite what its name suggests, is much more than a website. The company’s cloud-based platform gives facility managers (think of managers of groups of large buildings) access to a consolidated reporting, monitoring and management platform that all functions can be performed from. The platform can save companies energy and staff costs and Urbanise earns a recurring revenue stream from each new customer.  It may not be a buy right now but it has a tonne of potential for investors that can buy into the vision.

Motley Fool contributor Andrew Mudie does not owns shares in

Mitch Sonogan: FlexiGroup Limited (ASX: FXL)

Boring: A consumer finance company. Beautiful: A growing 5% fully franked dividend yield. Sometimes boring can be beautiful.

FlexiGroup provides specialty-leasing solutions to businesses and consumers throughout Australia, New Zealand and Ireland. Innovative finance products including Flexirent and No Interest Ever, which make it easier for consumers to purchase the goods they want, when they want. Over the past three years FlexiGroup has achieved a compound annual growth rate of 14% and 16% for adjusted cash earnings and dividends per share, respectively.

Trading around $3.40, the current P/E ratio of just 11.5 is a bargain, whilst the growing 5% fully franked dividend yield will appeal to income-seeking investors.

Motley Fool contributor Mitch Sonogan owns shares in FlexiGroup.

Peter Stephens: Domino’s Pizza Enterprises Ltd. (ASX: DMP)

Over the last decade the stock has risen by 1,690% and a further catalyst could be earnings growth of 28.4% per annum that is forecast for the next two years. Key reasons for such strong performance include an improved product, greater use of technology and slicker marketing campaigns, with expansion in Japan also set to diversify the company’s earnings profile and allow it to benefit from a weakening Aussie dollar.

While Domino’s has a price to earnings ratio of 55.4, its price to earnings growth (PEG) ratio of 1.95 still holds appeal versus the ASX’s 2.32.

Motley Fool contributor Peter Stephens does not own shares in Domino’s Pizza Enterprises Ltd.

Joshua Anderson: Ltd (ASX: CAR)

Carsales has been Australia’s leading automotive classifieds website for some time now and is continuing to grow its earnings and revenue. It has also expanded its sphere of operations by acquiring significant stakes in the largest South Korean and Brazilian car sales websites, as well as a 22.9% share of fellow ASX listed company iCar Asia Ltd (ASX:ICQ), which operates a growing business in parts of South East Asia.

Carsales can also now be considered an income stock, with its 3.5% dividend yield. The share price has pulled back lately presenting investors with a great opportunity to buy.

Joshua Anderson owns shares in Ltd

Owen Raszkiewicz: Senetas Corporation Limited (ASX: SEN)

Senetas Corp designs and sells high-speed network encryption devices to big business and government organisations throughout the world. Senetas’ profits are lumpy due to timing and quantum of contracts but it’s an impressive business operating in a rapidly growing market. Whilst it may have a market capitalisation of just $100 million, it’s cashed-up and ready to invest in developing a 100GB encryption device and products with customised algorithms. Whilst I’m not holding my breath, I expect better times lay ahead for Senetas shareholders.

Motley Fool Contributor Owen Raszkiewicz does not own shares of Senetas

Regan Pearson: Hansen Technologies Limited (ASX: HSN)

The business is a ‘mission critical’ billing software provider similar to my February Top Stock pick Gentrack Group Ltd (ASX: GTK). Hansen offers solutions to water and electricity utility companies, Pay TV and telecommunications companies.

I love Hansen’s defensive characteristics, strong recurring revenues and consistent growth which it has built over the past four years. Although shares are not cheap at around 20x earnings, the company is targeting strong FY15 operating revenue growth. As Warren Buffett says; “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Motley Fool contributor Regan Pearson owns shares in Gentrack Group Limited

 Mike King: iSentia Group Ltd (ASX: ISD)

iSentia has been around for decades but only listed on the ASX in June 2014. The company offers media monitoring services to more than 5,000 customers across the Asia Pacific region. iSentia has a number of products, all sourcing real-time data from 5,500 mainstream media outlets, 55,500 online news sources and 3.4 million user-generated content sources, delivered in up to 12 different languages. While the company may look expensive on a 2015 forecast P/E ratio of 21x, profit growth has been outstanding – so much so I recommended the company in November and bought shares in iSentia shortly after.

Motley Fool writer/analyst Mike King owns shares in iSentia Group.

Ry Padarath: XERO FPO NZ (ASX: XRO)

Xero was recently smashed by the market for a widening net loss. But the underlying signs for the future of this cloud accounting company are still positive. Operating revenue was $123.9 million, which was up from $70.1 million the previous year. The reason for this surge was the additional 191,000 paying customers who took total subscriber numbers for the company to 475,000 worldwide. Currently, these revenues are being reinvested back into the company to deliver better products. Adding almost 200,000 paying customers in a year shows the strategy is working, and if it continues to do so, profit should follow.

Motley Fool contributor Ry Padarath owns shares in Xero.

Tom Richardson: Macquarie Group Ltd (ASX: MQG)

I expect this diversified financial services business will follow its global peers to post a strong full year result in May on the back of a strategic shift now consistently paying dividends. Left shell shocked by the GFC the group has quietly re-oriented itself toward a lower beta strategy as recently demonstrated by the US$4 billion acquisition of 90 aircraft to support the growth of its Corporate and Asset Finance division. Macquarie is also growing into the mundane world of mortgage lending and retail banking services, while the asset management business continues to be the dominant performer. The group has a strong reputation domestically, reasonable valuation, and handy yield of 3.8% when selling for $77.97.

Motley Fool contributor Tom Richardson owns shares in Macquarie Group Ltd.

Ryan Newman: Woolworths Limited (ASX: WOW)

With the sharemarket sitting near a seven-year high, there’s been lots of talk about a significant pullback in the near future. While I am by no means suggesting that will eventuate, it does show the importance of holding defensive businesses in your portfolio.

Although there are plenty of bears covering the stock right now, Woolworths is a great bet for long-term investors. Offering  defensive cash flows, Woolworths also offers a regular source of dividend income. At its current price, it yields roughly 4.8%, fully franked, or 6.8% grossed up.

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. 

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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