Is it time to dive into these 3 market rejects?

Should you buy shares in Capitol Health Ltd (ASX:CAJ), Yellow Brick Road Holdings Ltd (ASX:YBR), and BHP Billiton Limited (ASX:BHP)?

| More on:
a woman

Assuming you’re buying a good company, it’s a no-brainer that the best time to buy shares is when they’re dirt cheap.

Ironically however, many investors steer a wide path around companies that are bumping along at low prices, perceiving them to be more risky. Markets are notorious for overreacting, and the patient investor can occasionally pick up a bargain by being greedy when others are fearful.

Here are three stocks that have been beaten up by the market recently, and my take on whether they offer value at today’s prices:

Capitol Health Ltd (ASX: CAJ) – last traded at $0.325, down 52% for the year

Shares in Capitol Health have taken a pummelling over fears that a government review of the healthcare system is likely to impact imaging volumes in its clinics. The fall was compounded by a very lofty valuation of up to 48 times earnings earlier this year.

Investors are also sceptical of Capitol’s memorandum of understanding with Enlitic (which could require a USD$10 million investment), wondering whether the investment in ‘data-driven’ healthcare will contribute to earnings.

Either way, Capitol is a well-positioned player in a growing business, notwithstanding investors selling on short-term fears. I believe the company has potential and I would consider buying shares under 30 cents, after the impacts of the government review become apparent.

Yellow Brick Road Holdings Ltd (ASX: CAJ) Last traded at $0.355, down 39% for the year

Yellow Brick Road has seen a heavy sell-down in recent times as investors have twigged to the dangers of increased regulation and interest rates (and possibly falling house prices) in our mortgage market.

Despite its exposure to the mortgage market, Yellow Brick Road is also working to offer a full range of financial services to customers including insurance, accounting, wealth management and lending services. Management indicates that its recently announced securitisation program will lead to higher profit margins as well as freeing the company to adjust its rates further.

The company is now profitable on an underlying basis (excluding acquisitions, integration and abnormal costs) and with a number of products declared ‘best in class’ by independent experts I believe Yellow Brick Road will deliver further growth in the future. The company looks to represent decent, albeit moderately risky value at today’s prices.

BHP Billiton Limited (ASX: BHP) – last traded at $19.80, down 39% for the year

Just when you thought your BHP shares couldn’t fall any further, comes the environmental disaster at the company’s joint-venture Samarco mine in Brazil. Shares lost another 10% in recent days, wiping a further $6 billion off the value of the company.

I once wrote that I was hoping to buy BHP shares below $30, but that was pre-Samarco, pre-iron ore price collapse, and pre-borrowing to pay dividends. With some of the iron ore weakness yet to make its way through to profits and significant uncertainty regarding the costs of Samarco and the value to shareholders of a ‘progressive dividend policy’, I have trouble seeing a bargain in BHP. Investors looking to pick up shares might be better served to watch and wait a while longer.

Wondering where you should 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 over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

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

*Returns as of January 12th 2022

Motley Fool contributor Sean O'Neill owns shares in Yellow Brick Road Holdings Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »