MENU

Star fund manager labels this ASX blue-chip share “dramatically undervalued”

Investors on the hunt for cheap stocks are often drawn to the high-risk small-cap end of the market where companies like The Reject Shop Ltd (ASX: TRS) or Myer Holdings Ltd (ASX: MYR) trade cheap on conventional valuation metrics due to operating struggles or structural headwinds that place them in the turnaround basket.

However, the star stock pickers at the L1 Long Short Fund Ltd (ASX: LSF) that returned an impressive 36.9% per year net of fees to investors from September 2014 to February 2018 have made a compelling case for one blue-chip ASX share they think is scarily cheap.

Of course, they may not be right as even the best stock pickers make mistakes. For example, since April 2018 the fund has lost around 10%, but it’s worth taking a look at what looks a compelling case for this ASX blue-chip share.

News Corp Ltd (ASX: NWS) is labelled as “dramatically undervalued” by L1 Capital, which reports that News Corp has no debt and “and approx. $2.4b of net cash (almost 25% of its market cap).”

L1 also claims “the firm’s assets apart from REA & MOVE are currently being valued at close to zero,” with the giant cash balance also giving it the options to grow by acquisition or return more cash to investors.

The fund manager is forecasting “double-digit” growth for the “foreseeable future” for News Corp thanks to the strength of its three key assets in digital real estate leader REA Group Limited (ASX: REA) (News Corp owns 61.6% of REA Group), the US online property realtor Move Inc. and world-famous business newspaper The Wall Street Journal.

In total, L1 calculates that News Corp’s digital assets and cash combined are worth $9.9 billion, which means its market cap of $10.5 billion reflects virtually no value in its giant suite of publishing, news, and cable television networks.

L1 has flagged how the digital offerings are “capital light” businesses that require little ongoing investment and therefore offer excellent free cash flows to investors.

According to the fund manager News Corp trades on an EV/EBITDA ratio of just 6x and 10%+ free cash flow yield.

It does look cheap on L1’s view, but investors should remember News Corp’s traditional media and publishing businesses are facing some powerful structural headwinds.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Yulia Mosaleva has a financial interest in REA Group Limited shares. The Motley Fool Australia has recommended REA Group Limited and The Reject Shop 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!