The lacklustre performance of the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) over the past two years might have scared off some investors, but there still remains a number of excellent investment opportunities for investors who are prepared to remain patient and take a long-term approach to investing.
It is important to remember that the top ten companies by market cap in the S&P/ASX 200 make up more than 44% of the index's overall performance. The underperformance of many of these household names have unfortunately left many investors feeling underwhelmed and uninspired.
The key to achieving better returns in the current environment, I believe, is to look past the top ten companies in the index and instead search for companies with good growth prospects at a reasonable price.
If I had $30,000 to invest with right now, here are four stocks I would feel comfortable to begin building a position in:
1. Greencross Limited (ASX: GXL) – Greencross recently provided a trading update at its AGM that showed its first quarter trading was in line with expectations. Total revenue and like-for-like sales are increasing strongly and the company also added 19 new sites to its network. Although the shares were sold down following the update, it appears this may have presented a good buying opportunity. The shares are now trading on a forecast price-to-earnings ratio of around 14x and offering a dividend yield of 3.5%.
2. Retail Food Group Limited (ASX: RFG) – Although the shares have fallen by more than 43% since early March, the long term business case for Retail Food Group remains intact. The company is rapidly expanding its operations overseas and has been steadily increasing its new store openings in Australia. Retail Food Group is forecasting for 20% earnings growth in 2016 and investors can expect to receive a fully franked dividend yield of around 5.8%. With the shares trading at 12x financial year (FY) 2015 earnings, this is a unique opportunity to gain exposure to a company that can provide both growth and income.
3. Beacon Lighting Group Ltd (ASX: BLX) – Beacon Lighting has only been listed for 18 months, but the share price has already increased by more than 70%. The company has a number of growth strategies to drive earnings including new store openings, improved and expanded product ranges, the development of its online offering and research and development of new lighting technologies. These strategies have been successful so far, with earnings increasing by more than 43% in FY15. At its recent AGM, Beacon Lighting confirmed it expects further increases in sales for FY16 and that market conditions have been positive so far. The shares do trade at a premium and are quite illiquid, and, as such, I'd consider a slightly smaller stake than the two stocks above.
4. Magellan Financial Group Ltd (ASX: MFG) – Magellan has built an enviable reputation in the international managed funds sector and now has more than $40.4 billion in funds under management. With an increasing number of Australian retail and institutional investors looking abroad to diversify their portfolio's, Magellan is likely to be a key beneficiary of this. Although the shares are trading at more than 21x FY15 earnings, the long term growth outlook is positive for Magellan and I would be happy to begin building a position.
