The wonderful thing about the share market is that share prices are always changing, meaning different businesses are presented as opportunities at different times.
This is why it’s important to have a watchlist. You need to know which companies you’re interested in so that you can pounce when they become attractively valued.
If I had $10,000 to invest today, this is how I’d do it:
Greencross Limited (ASX: GXL)
The owner of Petbarn and Greencross Vets has seen its share price hammered by nearly 30% over the past year. However, this could be the low point after new management write-off and wrote-down a number of items, meaning the FY19 profit could show a larger increase than before.
The pet company has regular earnings thanks to annual vet visits and supermarket-like earnings from Petbarn. There may be worries about competition but Greencross is building online sales, expanding its private label range and the company is hopefully benefiting from economies of scale as remains the biggest in Australia.
It’s attractively priced at 11x FY19’s estimated earnings with a useful grossed-up dividend yield of 6.6%.
Paragon Care Ltd (ASX: PGC)
Paragon Care is a small cap that is relatively unknown for most retail and institutional investors. It’s a healthcare equipment, device and bed distributor which has a website for centralised ordering for clients like hospitals and aged care facilities. It’s like a small-scale healthcare version of Amazon.
It offers relatively defensive earnings because it operates in the healthcare sector and it also should generate organic growth in time thanks to the ageing population. It’s accelerating growth in the short-term by acquiring other distributors to expand its offering.
It is also trading at 11x FY19’s estimated earnings and has a good grossed-up dividend yield of 5.36%.
Citadel Group Ltd (ASX: CGL)
Citadel is a leading provider of enterprise software that helps manage information across the health, national security and defence industries as well as other government departments like education.
Software as a service (SaaS) businesses are becoming increasingly strong investments. They have good recurring revenue, an easy-to-distribute product and high profit margins. Not only is Citadel steadily growing its earnings each year but it could also head to a higher price/earnings ratio as more investors learn of this company’s impressive business model and capability.
It’s currently trading at 23x FY19’s estimated earnings with a grossed-up dividend yield of 2.6%.
Costa Group Holdings Ltd (ASX: CGC)
Costa is one of Australia’s largest food-producing businesses with its categories of citrus fruit, tomatoes, mushrooms, berries and avocadoes. It has supply agreements with supermarkets like Aldi and Wesfarmers Ltd’s (ASX: WES) Coles which gives Costa an excellent source of steady income.
The company is working on expanding its growing capabilities in Australia, China and Morocco. This will increase the amount of food but it could also get more for its products in time due to a variety of factors: Food scarcity, a shift to healthier eating, Asian demand and ageing demand could all influence healthy food to go up in price faster than inflation.
It’s currently trading at 26x FY19’s estimated earnings with a grossed-up dividend yield of 2.2%.
MFF Capital Investments Ltd (ASX: MFF)
I think every investor needs to have some exposure to international shares, the ASX is only a small part of the global share market.
MFF Capital is one of the best-performing listed investment companies (LICs) over the past five years and could continue to be as it only holds what it thinks are the best businesses in the world. A lot of its holdings may be listed in the US, but most of them are global businesses, so you’re getting global earnings diversification with this pick.
It’s currently trading at a 13.5% premium to its post-tax NTA and has a projected grossed-up dividend yield of 1.6%.
You may notice that I already own all of the above shares except Citadel. I’m a long-term holder of these businesses and believe they have a very good chance of beating the market over the next five or more years.
At the current prices Greencross and Paragon seem like the best value due to their low valuations. However Costa and MFF could be the best bets over the long-term due to their ability to compound profit growth over the long-term.
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, Greencross Limited, Magellan Flagship Fund Ltd, and Paragon Care Limited. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO, Greencross Limited, and Wesfarmers Limited. The Motley Fool Australia owns shares of Citadel Group Ltd. The Motley Fool Australia has recommended Paragon Care 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 Scott Phillips.
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