Why this sell-off is no different to the others & 2 stocks to buy today

Market volatility has reared its ugly head once again with the S&P/ASX 200 Index (ASX: XJO) down over 2% since closing at post-GFC highs over a week ago. Driving the recent bout of market turmoil is increased geopolitical tension between the United States and North Korea as rhetoric suggests a war between the two nations is brewing.

The market’s recent hiccups have not been helped by the savage 13% sell-off in blue-chip telco Telstra Corporation Ltd (ASX: TLS) either.

On Tuesday, Telstra plumbed multi-year lows following rival TPG Telecom Ltd’s (ASX: TPM) announcement that it will acquire a telecommunications spectrum licence to build its own network (and provide more competition to the mature industry).

Accordingly, the share market has seemingly hit a wall of worry to prevent the index breaking through the coveted 6,000 points mark. Nevertheless, I believe this broad-based pullback provides an opportunity to pick up some long-term buys at discounted prices.

Two stocks on my list to buy today are Mantra Group Ltd (ASX: MTR) and Retail Food Group Limited (ASX: RFG).

Here’s why.

Mantra Group

The market-wide downturn has meant Mantra Group’s shares have all but given up their takeover-rumour driven gains of late March.

On Tuesday, shares in Australia’s second largest accommodation provider slumped 3.8% to $2.81 in underperforming the broader market. Whilst the bulk of worry around Mantra is its nascent CBD property portfolio, the group remains on-track to report decent net profit after tax (NPAT) growth after reaffirming earnings guidance for the full-year.

Given Mantra’s shares trades on a growing fully-franked yield of 3.5% and trailing underlying price-earnings of about 12.5x, I believe Mantra’s current share price undervalues the company’s prospects. Especially as it could reignite earnings growth across its business and pay a higher dividend in the future.

Retail Food Group

Master franchisor Retail Food Group’s shares have come under unexplained selling pressure, losing 20% of their value in just over two months. Shares in the vertically integrated baker, pizza and café franchisor closed at $5.15 on Tuesday after posting a modest rebound from their 52-week lows posted last week.

Retail Food Group’s share price implosion remains a thing of mystery to me, given the company continues to churn out headline NPAT and earnings growth. In the half-year ended 31 December 2016, Retail Food Group reported a 17.3% increase to NPAT (on prior corresponding period) and increased its interim dividend by 13.5% to 14.75 cents – the company’s 21st consecutive dividend increase.

With management reiterating the company is on-track to post underlying NPAT growth of 20% for the full year, and likely to maintain the stock’s 5.5% fully-franked yield, I believe the current sell-off is unwarranted.

Foolish takeaway

Whilst the market’s jitters are unlikely to assuage any time soon, long-term investors must remember that share markets experience periods of ups and downs all the time.

Although the current downtrend means the ASX 200 Index is unlikely to breach the 6,000 point barrier in the coming weeks, buying stocks which provide consistent returns at a discounted price is a sure fire way to ride out any short-term market volatility.

In my opinion, both Mantra Group and Retail Food Group offer this at their current shares prices.

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Motley Fool contributor Rachit Dudhwala has no position in any stocks mentioned. The Motley Fool Australia owns shares of Retail Food Group Limited. 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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