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3 bargain shares for your portfolio

Share prices change every day, even every hour or minute. How are you supposed to know what to buy? The old adage of ‘buy low, sell high’ is a good one to follow, if you have the cash and fortitude to do so.

‘Buying low’ can be a very difficult thing, particularly when it takes a certain amount of bravery to buy a stock that has taken a bit of a beating. I think the key is to buy shares that clearly have long-term growth potential, not just cyclical stocks or ones which may be permanently damaged.

Here are three shares that are trading at levels much lower than their all-time highs.

Collins Foods Ltd (ASX: CKF) is a large franchisee of KFC restaurants in Australia. There isn’t a lot of growth with KFC stores, but it has managed to achieve a small amount long-term organic growth at its operations.

The key for Collins’ growth is maintaining a low dividend payout ratio and using that cash to buy more KFCs. This strategy has worked well in Australia, but the exciting part is that it’s now expanding into Europe with purchases in Germany and the Netherlands.

Collins Foods is currently trading at 19x FY17’s earnings with a grossed-up dividend yield of 4.48%.

Healthscope Ltd (ASX: HSO) is the second largest private hospital operator in Australia. It hasn’t impressed the market since it listed, with its shares down from $3 in 2015 to today’s $2.

However, I think this presents investors a good opportunity to invest in a business that has long-term growth tailwinds. The ageing Australian population means that more patients should end up in Healthscope’s hospitals over the years.

A key reason to be excited about Healthscope is the amount of hospital beds it is adding over the next few years. The business is on track to add a further 566 hospital beds and 38 operating theatres by FY19.

Healthscope is currently trading at 21x FY18’s estimated earnings with an unfranked dividend yield of 3.36%.

Tassal Group Limited (ASX: TGR) is Australia’s largest salmon farmer, with several farms based in Tasmania’s waters. The share price has fallen to $3.75, down from $4.75 earlier in 2017.

Australians are generally eating a little healthier than we used to, which includes eating more fish such as salmon. That’s why Tassal has managed to achieve good compound growth over the past few years.

Tassal noted that there has been some market concern regarding reducing salmon biomass out of Macquarie Harbour, with a particular focus on increased growing costs from FY19. However, Tassal management are confident that long-term growth across all of its farms is assured.

It’s currently trading at 13x FY18’s estimated earnings with a grossed-up dividend yield of 5.71%.

Foolish takeaway

All three shares are trading quite cheaply, but at the current prices I’d be more interested in Collins and Healthscope. Both shares should be able to materially grow their earnings over the next three years, whereas Tassal is somewhat dependent on what the salmon price per kilo is.

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Motley Fool contributor Tristan Harrison owns shares of HEALTHSCPE DEF SET. 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.

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