Today is the day to pick up some bargain stocks.
As Warren Buffett once said, "Be fearful when others are greedy, and be greedy when others are fearful".
Following yesterday's crash I compiled a list of great companies trading around their current price to book values. Some are a little higher, but when you combine their price to book values with an excellent return on equity you end up buying great companies. Here's the criteria I used:
- Return on Equity (5-year average) – Greater than 15%. Companies with sustainable competitive advantages should achieve above average returns on reinvested capital
- Total Debt to Equity (Recent Year) – Less than 40%. Less debt is better, especially when combined with a high ROE above
- 5-Year Revenue Growth Rate – Greater than 10%. Growth in sales is always a good sign
- Earnings per share (EPS) growth rate – Greater than 5%. Like sales growth, growth in earnings is also a good sign
- Market Cap – Greater than $300 million – We want to focus on the larger companies on the ASX
- Dividend Yield – Indicates whether the company is paying a dividend
- Price to Book Value – less than 5 – We want to find companies whose price to book is under 5x
The top 10 stock picks listed in 'price to book value order' are:
| Company name | Symbol | Return on equity (5 yr avg) (%) | Total debt/equity (Recent yr) (%) | 5y revenue growth rate | 5y EPS growth rate | Market cap | Div yield (%) |
|
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| Webjet Limited | (ASX:WEB) | 27.19 | 0.6 | 26.8 | 18.75 | 312.15M | 3.41 | 4.54 | |
| NIB Holdings Limited | (ASX:NHF) | 18.53 | 18.76 | 12.46 | 27.67 | 1.51B | 3.21 | 4.31 | |
| Vocus Communications Limited | (ASX:VOC) | 16.69 | 36.35 | 78.36 | 33.48 | 1.31B | 0.39 | 3.76 | |
| Credit Corp Group Limited | (ASX:CCP) | 23.15 | 36.01 | 15.38 | 22.32 | 535.92M | 3.73 | 3.04 | |
| Austbrokers Holdings Limited | (ASX:AUB) | 17.94 | 23.48 | 16.7 | 13.11 | 499.90M | 4.94 | 2.04 | |
| Woodside Petroleum Limited | (ASX:WPL) | 15.39 | 16.42 | 16.69 | 7.27 | 26.96B | 8.68 | 1.21 | |
| Magellan Flagship Fund Limited | (ASX:MFF) | 17.67 | 0 | 39.9 | 39.51 | 879.02M | 1.05 | 1.09 | |
| TFS Corporation Limited | (ASX:TFC) | 16.62 | 34.14 | 17.48 | 5.75 | 519.27M | 2.04 | 1.02 | |
| Mineral Resources Limited | (ASX:MIN) | 25.13 | 11.24 | 49.13 | 28.71 | 931.12M | 4.83 | 0.78 |
