The recent reporting season has left quite a few attractive growth shares trading at lower valuations despite revealing pretty solid results.
That’s one of the funny things about the share market. In a short space of time the market seems to think a business is worth 10% or 20% less than it was a few days before despite the long-term outlook of the business essentially not changing.
If I were lucky enough to be given $10,000 to invest today this is how I’d do it:
Costa Group Holdings Ltd (ASX: CGC) – $2,500
Costa is one of Australia’s largest food producing companies. It grows berries, tomatoes, mushrooms, citrus fruit and avocadoes. This is a nice list of healthy food, I believe there is going to be a steady shift of Australian diets towards those items when you consider the long-term growth of healthier-in-general diets, vegetarians and low-carb eaters.
FY18 was a solid year of growth for the company, but Costa said the following years may ‘only’ show underlying growth in low double digits. This is still solid growth and compounding can take care of returns when added with a growing dividend.
A longer-term bonus is international growth in Asia and North Africa. Costa could become a global food business over the coming years.
There’s a decent chance Asian demand for quality Australian-grown products increases the price of Costa’s products similar to the infant formula effect.
It’s currently trading at under 25x FY19’s estimated earnings.
BWX Limited (ASX: BWX) – $3,000
Sukin-owner BWX has seen its share price fall another 4.4% today to $3.71. The takeover offer isn’t going ahead but I think BWX has plenty of potential to beat the market over the coming years.
There is a growing demand in many countries for natural beauty products. Sukin, and BWX’s other recent acquisitions, could easily be sold in almost every country in the world – not just the few that it’s currently sold.
The Board has appointed a new CEO that is focused on growing the current stable of brands, not buying more. There are a few short-term issues like a supposed tax bill relating to FBT according to speculation from the AFR, there could also be a fairly expensive lawsuit in the US to deal with.
But, the long-term future looks very promising if BWX can execute on the opportunity.
It’s currently trading at under 14x FY19’s estimated earnings, which seems very reasonable to me.
Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE) – $2,000
I am steadily coming round to the idea that Asia, excluding Japan, could be the best region to have money invested over the next decade. Both China and India have gigantic populations with huge middle class segments.
It is fairly easy to imagine that the various industries in those countries will benefit a lot as additional services are grown such as banking, insurance, wealth management, energy, technology and so on. A growing middle class should result in demand for those products and services. This exchange-traded fund (ETF) offers exposure to all those industries.
I expect this ETF will be more volatile than most other ETFs. Particularly due to the rising US interest rate, which is likely to increase the value of the US dollar. Many of the constituents in this index are higher-risk than a similar ASX or American index.
However, I think it’s worth the risk considering it has dropped in value because of the trade war between the US and China. I’m looking to buy some of it soon and steadily add more to my position if the trade war gets worse.
Paragon Care Ltd (ASX: PGC) – $2,500
Paragon Care is my favourite small cap idea at the moment. It has a single purchasing platform for its healthcare clients, such as hospitals, to buy whatever products they need such as beds or devices.
I like that Paragon is a diversified healthcare idea providing exposure to the ageing population and growing total healthcare expenditure of Australia. It isn’t exposed to a single health issue such as cancer treatment or hearing.
It has made a lot of acquisitions in recent years and also carries a decent amount of debt. However, at only 11x FY19’s estimated earnings Paragon doesn’t need to be wildly successful at integrating those businesses to be successful for investors.
At the current prices I’m very interested in BWX and Paragon shares. I think they will deliver market-beating earnings per share (EPS) growth whilst also providing a pleasing level of dividend growth over the coming years.
Motley Fool contributor Tristan Harrison owns shares of BWX Limited, COSTA GRP FPO, and Paragon Care Limited. The Motley Fool Australia owns shares of and has recommended BWX Limited and COSTA GRP FPO. 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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