The current climate appears to be quite risky for anyone considering to invest. There’s a declining house market, political uncertainty and trade tariff wars unfolding before our eyes.
There’s always a reason not to invest. The share market has performed so strongly throughout the decades despite all the problems. That’s why it’s riskier than cash.
However, I do think readers need to put a little more thought into the shares they buy at the moment. Rising interest rates will have an effect on the shares that are seen as particularly defensive. The high price/earnings ratio shares could also suffer from valuation contractions as well.
It could be better to invest in shares where you’re likely to get a ‘quicker’ pay back of your money. Consider these ideas:
Greencross Limited (ASX: GXL)
Greencross is only trading at 12x FY19’s estimated earnings due to a few internal and external factors affecting the company such as accounting write-downs and competition.
However, the business is still growing revenue and the co-location strategy of putting a vet inside a Petbarn should increase profit margins. I think the problems will likely be short-lived.
FY19 could be a bumper result compared to the lower FY18 profit figure, which could materially send the valuation higher.
Specialty Fashion Group Ltd (ASX: SFH)
I think this share is an opportunity because it’s offloading all of its retail chains except for City Chic. The funny thing is that the businesses selling make a combined loss, meaning it will be more profitable and have a lot of cash on the balance sheet after the divestments.
City Chic is performing well in the niche plus-size female section of clothing retail, it is expanding its overseas sales and around a third of revenue is generated online.
Citadel Group Ltd (ASX: CGL)
Software is becoming increasingly important to reach the right decision in a time-efficient manner. Citadel provides a variety of software services to different Federal and State departments like education and defence, as well as the private sector.
It is generating pleasing organic growth with long-term contracts and additional contract wins. It also regularly makes smart bolt-on acquisitions that will grow over time.
It’s currently trading at 24x FY18’s estimated earnings and is likely to keep growing earnings per share (EPS) by double digits over the next few years.
Costa Group Holdings Ltd (ASX: CGC)
Costa is one of Australia’s largest food-producing businesses with its mushroom, avocado, berry, tomato and citrus fruit farms.
It has already been an excellent performer since listing and could continue growing with demand in Asia expected to grow in-particular due to changing middle class preferences. Think what has already happened with infant formula – Costa could benefit from this in a similar, smaller way.
It’s currently trading at 26x FY19’s estimated earnings.
UBS IQ Asia ETF (ASX: UBP)
This exchange-traded fund (ETF) gives investors exposure to some of the largest businesses in Asia, excluding ones listed in Japan.
Some of its top holdings include Tencent, Alibaba and Samsung. The 20th century was a defining period led by the United States, Asia could step forward as the main global economic driver this century. Several businesses held in this ETF are likely to be big winners from the growing Chinese middle class demographic.
I’d be happy to buy shares of all five at the current prices. I think Costa and Specialty Fashion could create the best returns over the next 12 months with positive market surprises. However, over the long-term I expect the UBS Asian ETF and Costa will create the biggest returns over the next decade and beyond due to the exposure to the Asian economy.
These 3 stocks could be the next big movers in 2020
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Motley Fool contributor Tristan Harrison owns shares of COSTA GRP FPO and Greencross Limited. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO and Greencross Limited. The Motley Fool Australia owns shares of Citadel Group Ltd. 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 Scott Phillips.