Last Friday, the All Ordinaries (INDEXASX: XAO) index bumped up 2% to end the week at 6831.8, finishing just 21.8 points shy of its all-time high. As we march toward a seemingly inevitable new peak, it’s a reminder that stocks aren’t exactly what you would call cheap at the moment.
Markets are awash with cash after last week’s interest rate cut. In June we got one for the money, but the Reserve Bank of Australia has just given us two for the show and the markets are running with it.
But, as always, there may just be some value out there if (as Peter Lynch would say) you turn over enough stones. Here are two ASX stocks that I believe may be worth a second look.
South32 Ltd (ASX: S32)
South32 is looking pretty cheap at the moment, with the share price closing at $3.16 last week – the stock is just off its 52-week low of $3.00 and a long way from its 52-week high of $4.28. I think South32 has fallen out of favour as iron ore and gold miners like BHP Group Ltd (ASX: BHP) and Newcrest Mining Ltd (ASX: NCM) have stolen the spotlight so far this year. However, South32 is now trading with a price-to-earnings multiple of just 8.7, and is yielding a 4.48% dividend on these prices. I think S32 shares might be a good place to park a resource allocation going forward, as the iron stocks look to be approaching (or passing) their peak.
Bellamy’s Australia Ltd (ASX: BAL)
The Bellamy’s share price is now trading at almost half of its 52-week high of $13.66 and opened today at $8.33. Considering the stock touched more than $22 in March last year, Bellamy’s has now fallen off the radar in a serious way. Although I think its highs were a bit too euphoric to be justified, I also think that its price is looking cheap at the moment, particularly if Bellamy’s gets the green light to enter the lucrative Chinese market (which is still pending). Investors have clearly got sick of waiting, but if this does happen, I see big upside in the Bellamy’s share price going forward.
Both of these shares look undervalued at current prices (in my opinion). If I had to choose, I would go with South32. The stock is looking cheap but has a healthy dividend yield, a diversified earnings base and has proved to be a quality company.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Bellamy's Australia. 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.