While I think the likes of Appen Ltd (ASX: APX) and Xero Limited (ASX: XRO) have outstanding growth potential and deserve to trade at a premium, many investors are understandably uncomfortable buying shares with such high price to earnings multiples.
With that in mind, I have picked out two top shares which I think could be classed as cheap at current levels.
Here’s why I would buy them:
Aristocrat Leisure Limited (ASX: ALL)
I think Aristocrat Leisure is a prime example of growth at a reasonable price. The gaming technology company’s shares are currently changing hands at approximately 21x estimated FY 2021 earnings. I think this offers investors a compelling risk/reward based on its very positive long term growth outlook.
This is because as well as having a pokie machine business which manufactures many of the most sought after machines in the world, it has a growing digital business complementing its growth. The latter business has millions of daily active users playing its games and generating significant recurring revenues. Given its pipeline of releases and the increasing popularity of mobile gaming, I believe this business will underpin strong earnings growth over the next decade.
Telstra Corporation Ltd (ASX: TLS)
Another ASX share which I think is cheap is Telstra. Despite its defensive qualities and the maintaining of its guidance in FY 2020, its shares are down over 12.5% since the start of the year. This leaves them trading at an attractive 19x estimated full year earnings. As a comparison, rival TPG Telecom Ltd (ASX: TPM) is trading at approximately 29x estimated full year earnings. It also means Telstra offers a fully franked 5% dividend yield, which I think is generous in the current environment.
Another reason I think this is good value is its improving outlook. Thanks to the NBN rollout nearing completion, its sizeable cost cutting, and the simplification of its business, I believe a return to growth could be coming possibly as soon as FY 2022. This could make now an opportune time to pick up shares.
3 "Double Down" Stocks To Ride The Bull Market
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Appen Ltd. 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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