After a relatively strong run for the local share market a lot of the best and most popular growth stocks have hit lofty valuations.
In fact the two of the commonest mistakes investors make are paying too much for fast-growing stocks, or paying at all for stocks that are a cheap for a reason.
Ideally investors should look for businesses that offer growth at a reasonable price (GARP) as the fundamentals of investing never change in that you need to search for high-quality businesses able to grow their profits and dividends over the long term.
Below I name 5 shares I'd buy with $50,ooo today that should offer a good mix of value, growth and income amidst an expensive market.
Amcor Limited (ASX: AMC) is the global packaging business that enjoys some competitive advantages with leverage to a stronger U.S. dollar and the long-term economic growth of emerging markets. Thanks to its defensive revenue streams the group has a rock solid record of revenue, profit and dividend growth. The valuation also looks reasonable on 19.5x forward earnings with a 3.5% dividend yield it could offer solid total returns. I would allocate $10,000 to Amcor.
Ramsay Health Care Limited (ASX: RHC) is the private hospital operator across Australia, France, Asia and the UK. It's forecasting 8% to 10% earnings per share growth in FY 2018 which is reasonable given some headwinds in Europe currently. Selling for 24x analysts' estimates for forward earnings the stock is not conventionally cheap, but its growth outlook over 3 to 5 years or more remains solid. The estimated 2.25% yield should also rise over time, as such I'd allocate $12,500 to Ramsay.
Commonwealth Bank of Australia (ASX: CBA) I would not let the problems associated with risk controls and the upcoming royal commission into the banks put me off from buying CBA shares as an income seeker. On the contrary the recent share price weakness offers an opportunity to buy into Australia's highest quality bank that could offer solid total returns over the long term. The stock sells for $78.90 today and offers a 5.4% yield plus the tax effective benefits of franking credits. I would allocate $12,500 to CBA.
Corporate Travel Management Ltd (ASX: CTD) selling for $19.70 it is starting to look reasonable value given it delivered earnings per share of 65.8 cents in FY 2017 excluding amortisation costs related to its acquisitions. The travel group is forecasting EBITDA in the range of $120 million to $125 million in FY 2018 that would represent growth of 22.5%-27.5%. If the group can deliver earnings per share of 8o cents in line with the EBITDA growth it would sell for 24x forward earnings. This looks reasonable value and I would allocate $5,000 to Corporate Travel if the shares were less than $19.70.
Magellan Financial Group Ltd (ASX: MFG) – I'm a little surprised to see shares selling for $25.17 this afternoon given the strength of US equity markets and recently weakening Australian dollar. Magellan's half-year result will be complicated by costs associated with its recent $1.5 billion Magellan Global Trust raising. However, on an adjusted basis I expect it to deliver some healthy profit growth over FY 2018. The group should offer a yield around 3.7% based on current dividend forecasts and the estimated earnings multiple of 20x looks reasonable given the strong growth in funds under management. As such I'd invest $10,000 in Magellan.
