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Carsales.com Limited, Insurance Australia Group Ltd and Virtus Health Ltd: Is it time to buy?

Times are tough – the unemployment rate is high, there’s talk of ANOTHER rate cut by some economists, and even the federal government has done an about face from last year’s budget by urging every man and his dog to spend.

In these times everyone wants their dollars to stretch further, but a few of us might feel a little self conscious leaving Aldi brimming with the bargains we’ve just snatched. Astute investors harbour no such feeling when they have just snapped up bargains that the manic Mr Market has presented them, and neither should you. Below are three stocks trading near 52-week lows – do they deserve your money?

Carsales.com Limited

Carsales (ASX: CAR) is the leader in the Australian online car classified market, and by a wide margin according to surveys conducted by major research houses such as Nielsen. The market seems to be unenthused with management’s projection of ‘moderate growth’ in the second half of 2015. In my opinion the strong pricing power derived from their market dominance will lead to continued strong earnings growth in the years to come.

This doesn’t even take into account its endeavours to grow in Asia and South America, where management has so far reported pleasing results. With the stock sitting just 6% above its 52-week low, investors should jump in before the offer runs out.

Insurance Australia Group Ltd (ASX: IAG

IAG is one of Australia’s top personal insurance companies alongside Suncorp Group. As Australia’s population grows demand for personal insurance should grow which is a positive for the industry. However competition is fiercer than ever before with the rise of bancassurance roping in those with a mortgage by offering significant discounts (15% if you’re on their home loan package). The announcement recently that Berkshire Hathaway is looking to break into the domestic market will only serve to further heat up the competition, meaning that earnings of incumbents (like IAG) are likely to suffer. You can find more details on these issues here and here.

Virtus Health Ltd (ASX: VRT)

Virtus sells the hope of conceiving a child through performing IVF treatment for couples with fertility issues. The company has managed to grow its share of the domestic assisted reproductive services (ARS) market to 46.5%, up from 35% in 2012. The company is chasing growth overseas and is seeing double-digit volume growth in its Ireland operations, great news for investors with the weak Australian dollar.

Whilst sizeable one off charges reported in first half 2015 and the slight contraction of the domestic market has weighed on the stock, investors willing to take a risk could be rewarded with management expecting low-to-mid teens earnings growth before non-recurring items.

Of the three, Carsales presents as the best opportunity, but given that it still trades at a trailing P/E of 23x, some investors may believe the valuation is too rich. If that’s how you feel then look no further than the top stock pick from our Motley Fool analysts…

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 Simon Chan has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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