There are some ASX shares that look absurdly cheap right now in my opinion.
I’d like to snap up some of them for my portfolio. There are plenty of businesses that seem troubled due to COVID-19 impacts – I wouldn’t want to buy those. It could be like trying to catch a falling knife.
There are other shares that have good growth potential, but their share prices are too eye-watering for me at the moment. I’m thinking about shares like Kogan.com Ltd (ASX: KGN) and Afterpay Ltd (ASX: APT).
But I think these ASX shares could be very cheap buys right now:
Share 1: Vitalharvest Freehold Trust (ASX: VTH)
Vitalharvest is a real estate investment trust which owns some of the largest aggregations of berry and citrus farms in Australia. Those farms are leased to leading horticultural business Costa Group Holdings Ltd (ASX: CGC).
From those existing farms it receives a solid fixed rental return as well as variable rent in the form of 25% of the profit generated by those farms. The last 18 months has been quite difficult for Costa (and Vitalharvest’s) earnings, but I think we have passed the worst point.
I think increased earnings and distributions from improved variable rent could be a boost for shareholders and the Vitalharvest share price.
Another boost could come from the new manager Primewest Group Ltd (ASX: PWG). Primewest plans to look for new acquisition opportunities for the ASX share in both Australia and New Zealand.
It’s going to look for farms, processing and manufacturing facilities for food, food and beverage packaging facilities and storage facilities relating to food. I think this wider investment scope, and a regular acquisition plan, will make more investors take notice of Vitalharvest.
It had a net asset value (NAV) of $0.95 per unit at 31 December 2019. At the current Vitalharvest share price that’s a 19% discount, assuming the NAV hasn’t changed. There’s a chance the NAV has grown since then. Of course, it could also have fallen.
Using the last 12 months of distributions, it offers a current distribution yield of 6.2%.
Share 2: NAOS Small Cap Opportunities Company Ltd (ASX: NSC)
This is a listed investment company (LIC). The job of a LIC is to invest in other shares on behalf of shareholders.
Some of its current investments include retirement living business Eureka Group Holdings Ltd (ASX: EGH), IT and telecommunications provider Over The Wire Holdings Ltd (ASX: OTW) and IP voice network business MNF Group Ltd (ASX: MNF). These businesses are proving defensive during COVID-19. For example, one of MNF’s customers is Zoom, the video conferencing business, which has seen a large amount of growth.
This LIC looks for ASX shares with market caps between $100 million and $1 billion. It has a high-conviction portfolio of around ten businesses, meaning it has a large position in each share with an aim of holding for them for the long-term.
I think this LIC is really cheap because of the discount to its net tangible assets (NTA). At 30 June 2020 it had pre-tax NTA per share of $0.68. At the current NAOS Small Cap Opportunities Company share price it’s trading at a 23.5% discount to the June NTA.
The LIC has had a tough couple of years, but I think performance will return to a more normal level as the economy recovers from COVID-19. FY20 was a solid year for the Naos LIC, its 2.6% portfolio return (after expenses, before fees) was 8.26% better than the return of the S&P/ASX Small Ordinaries Accumulation Index.
The ASX share seems to have a floor of a quarterly 1 cent per share dividend, equating to an annual 4 cents per share. This is a grossed-up dividend yield of 11%.
I think the NTA discount is so large that you can’t go too wrong with this pick, unless there’s another crash later this year due to COVID-19 or the US election.
I think both these ASX shares look very cheap and there’s a good chance the discount to their underlying values will close up over time. Even if they don’t rise, shareholders will be rewarded with seemingly large income payments over the next 12 months. At the current prices I’d probably go for Vitalharvest, but I’d be happy to buy both.
Where to invest $1,000 right now
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Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
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Tristan Harrison owns shares of NAO SMLCAP FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Over The Wire Holdings Ltd. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO and MNF Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Kogan.com ltd and Over The Wire Holdings 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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