One of the best advantages about investing in individual shares versus listed investment companies like Australian Foundation Investment Co. Ltd. (ASX: AFI) or index funds like the Vanguard Australian Share ETF (also known as V300AEQ ETF UNITS (ASX: VAS)) is that we can invest in cheap companies even if the market isn't at a cheap price.
When a company has been growing and looks as though it's going to keep growing for the long term, a temporary decline in the share price is the best time to buy shares in that company.
There are quite a few companies that have been hit for six recently, but here are two that I think would make good long term buys at today's discounted prices:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
"Soul Patts" is one of the oldest businesses listed on the ASX, having been around since 1903 and it's grown to be $3.5 billion in size.
It owns large positions in a number of different companies such as its 44.1% holding of Brickworks Limited (ASX: BKW) and its 24.6% holding of Australian Pharmaceutical Industries Ltd (ASX: API). It's these large conviction holdings that have helped it be one of the long term success stories of the ASX.
However, its biggest holding (by value) is TPG Telecom Ltd (ASX: TPM) which at 31 July 2016 was 45% of Soul Patts' net assets and worth $2.7 billion. You may have noticed that TPG's share price has fallen by 37% since 19 September 2016. This is the biggest reason why the Soul Patts share price is down 10% since 19 September 2016.
I think this price decline gives a great opportunity to buy one of the most stable stocks on the ASX.
Soul Patts is trading at 21.7x FY17's estimated earnings with a grossed up dividend yield of 5.05%.
REA Group has been one of the stand out stocks on the ASX over the last 10 years, having grown from a small company into one with a market capitalisation of $6.9 billion.
It has grown from having one website into a global property website company with market-leading websites in Australia, Europe, Asia and a stake in the third most popular property website in the USA.
The reason why REA Group's share price is down 20% since 29 July is that there has been a slowdown in the amount of listings on its website in Australia.
Even with that headwind, REA Group was still able to grow earnings before interest, tax, depreciation and amortisation by 9% in the three months to 30 September 2016. I think REA has a great future ahead of it with its Australian websites and the potential in the USA market.
REA Group is trading at 28x FY17's estimated earnings with a grossed up dividend yield of 2.23%.
Foolish takeaway
One of my favourite Warren Buffett pearls of wisdom is that "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".
Both of the above businesses are wonderful in my opinion and would make great long term buy and hold choices.