Reporting season is just around the corner, so if there’s any shares you want to buy before they reveal their result you better get onto it.
It’s quite hard to gauge what the reaction will be to a report of a business. Investors on the day are reacting to the expectations of the report rather than report itself.
If you’re going to invest just before reporting season, you are making a calculated decision that the market is underappreciating some aspect of what’s going to be revealed. That’s why the below two shares could see a bounce in my opinion, although they could also see further share price trouble:
Paragon Care Ltd (ASX: PGC)
Paragon is a healthcare product distribution business which sells items like beds, surgery equipment and devices to various health care clients like hospitals and aged care operators.
The business has been in the dumps over the past year with its earnings being dragged down by the ‘legacy capital business’. However, Paragon has announced the sale of this division which could see confidence return if management can show a return to profit growth in FY20 after the divestment.
The new Paragon would have higher profit margins and a better earnings growth profile. It’s trading at only 10x FY20’s estimated earnings, which seems cheap to me when you think about the growing overall spending on healthcare due to the ageing population.
Vitalharvest Freehold Trust (ASX: VTH)
Vitalharvest is trading at almost the lowest price it has done in 2019, even though falling interest rates have boosted most other real estate investment trusts (REITs) on the ASX this year.
Farmland has proven to be a solid investment over the centuries and it would take a terrible change in climate or an incredible technological shift in food production to alter that.
The main reason for the pessimism about Vitalharvest is that the tenant of all of its current properties which it has a profit-share agreement with, Costa Group Holdings Ltd (ASX: CGC), experienced issues in both of the farm sectors. Fruit flies were seen near its citrus farms, although this only affects “one portion of Vitalharvest’s three citrus properties” which are within the suspension zone – which will likely result in additional costs.
Costa is also experiencing crumbly raspberries with one of its varieties. But again, raspberries represent only approximately 25% of Vitalharvest’s berry plantings and the variety in question accounts for 35% of the raspberry area.
These seem like short-term issues to me, which don’t affect a majority of the farms. Therefore, I think it could be an opportunity to buy before the report.
The issues at Paragon and Vitalharvest could be worse than expected and cause the share price to fall even further, but I think they have compelling longer-term outlooks, which is why I’m looking to buy shares of Vitalharvest (as I already own Paragon shares).
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Motley Fool contributor Tristan Harrison owns shares of COSTA GRP FPO and Paragon Care Limited. The Motley Fool Australia owns shares of and has recommended 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.