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Stock markets have provided substantial returns to investors over years. The risk-and-return game has been a dependable source of income for many investors and is expected to continue to entice people to hop into the vibrant investing world.
So far till 2019, numerous incidents like the Brexit-related uncertainty, U.S.-China trade war, and the Fed’s decision to cut interest rates thrice in the year have crushed stocks from all sectors in different ways.
These events should not be deemed as dreadful information by value investors who usually profit from buying stocks that are less expensive or are trading at a discount because all stocks have not been able to match the stock market’s rally.
Due to the global worries — including the trade war and coronavirus impact— there are some stocks, which did not grow much in price, but still manages to trade at a fair discount and therefor appears to be good investment opportunities for value investors.
For a matter of fact value investors seek for those types stocks that they believe is undervalued by the stock market. Therefore, one of the most common ways to search for undervalued stocks in any market situation is the value investing.
Particularly, these investors look at quite a few key metrics, valuation method and financial ratios, which are crucial in the value stock selection process. In contrary with the growth investing, value investing seeks to maximise returns by finding stocks through discounted cash flow analysis. Notably, the two key ratios price/earnings (P/E) and price/sales (P/S), are used commonly to ascertain whether a stock is trading cheap.
One of the most popular ratios across the world is none other than the P/E ratio. This ratio shows the investors intention to pay for each dollar of earnings in every stock. By evaluating the P/E ratio of a given stock with that of the broader market, an investor discovers out whether the stock is presently trading cheap or not.
In the same way, the P/S ratio compares a given stock’s price to its total sales. P/S ratio reflects sales, which is quite difficult to influence with accounting techniques than earnings and therefore few investors prefers this ratio more than P/E ratio. Also, earnings can be negative while sales cannot.
Source: Unsplash
Investment viewpoint
Considering above points, we may conclude that an investor merely does not invest in the stocks while value investing, but they instead invest in the business itself. It is not only the stock price alone that matters before investing in certain stocks, but strong fundamentals of the business should also be taken into consideration in value investing regardless of the stock price.
Value investing is one way where an investor is not compelled to follow the market movements and stock price change and make a speedy reaction to the same. Value investors instead are aggressively trying to pinpoint stocks which seems to have been traded for less than their intrinsic or book value and make profits based on the market’s un-productivity. Simplicity is the important characteristic that makes value investing stand out.
So, it can be concluded that there are still a few stocks, which are good investment options for value investors. Hence, such investors should consider these stocks for 2020. Let us have a look at the performance of few value stocks on ASX:
Challenger Limited (ASX: CGF)
Challenger Limited is an investment management firm involved in offering financial security for retirement. Its core businesses are involved in annuities, funds management and administration platforms. The company has two key operating segments -Life and Fund Management.
1HFY20 Financial Results for the Period Ended 31 December 2019: The company has recently released its interim results, wherein it reported assets under management of $86.4 million, up 10.2% year over year. Normalised profit before tax for the period came in at $278.6 million, an increase of 3.2% year over year. During the period, CGF improved the use of secure retirement income streams and reported a rise of 15% in total life sales which stood at $3.1 billion. The company’s confidence in future growth enabled them to declare fully franked interim dividend of 17.5 cents per share, payable on 24th March 2020.
Outlook: The company is aiming to enhance advisor experience and is dedicated on strengthening relationships with profit-for-member funds. It is also seeking to retain financial discipline and strong capital position in the coming years and is expecting FY20 normalised net profit before tax to be in the range of $500 million to $550 million. The company is also targeting cost to income ratio to be in the band of 30-34% and is likely to pay full year dividends of 35.5 cents per share. Challenger Limited is aiming a pre-tax normalised RoE of RBA cash rate plus 14%.
Stock Performance
The stock of Challenger Limited was trading at $6.64 per share on 13th March 2020, depicting a decline of ~0.747%. The company has a market capitalisation of $4.09 billion as on 13th March 2020. The total outstanding shares of the company stood at 611.96 million, and its 52-week low and high is $5.380 and $10.43, respectively.
Tabcorp Holdings Limited (ASX: TAH)
Tabcorp Holdings Limited is a leading diversified gambling entertainment group in Australia. Notably, it has more than 5,000 employees. On 28th February 2020, the company announced that Ziggy Switkowski AO has retired from the post of Non-Executive director, effective from 28th February 2020.
1HFY20 Financial Results for the Period Ended 31 December 2019: The company experienced a robust result in 1H FY20, which was bolstered by diversified businesses of the Group. The company’s revenue stood at $2,913.9 million, up by 4.4%. The results benefitted by the performance of the Lotteries & Keno division; wherein digital turnover of Lotteries witnessed a rise of almost 40%. The company declared a fully franked interim dividend of 11 cents per share in 1HFY20.
What to Expect: The company is in the last phase of Tabcorp-Tatts integration and anticipates EBITDA synergies and business improvements for FY21 in the range of $130 million - $145 million. However, for FY20, it targets EBITDA benefits of $100 million. The company remains on track to cement its unique omni-channel model, along with investments in personalisation, product innovation, digital capability as well as retail modernisation.
Stock Performance
The stock of Tabcorp Holdings was trading at $3.3 per share on 13th March 2020. The company has a market capitalisation of $6.68 billion as on 13 March 2020. The total outstanding shares of the company stood at 2.03 billion, and its 52-week low and high is $2.920 and $4.98, respectively.
National Australia Bank Limited (ASX: NAB)
National Australia Bank Limited is involved in offering banking services, card facilities, credit and access, international banking, investment banking, to name few. In the recently released Pillar 3 report, the company notified that its CET 1 capital ratio as at 31st December 2019 stood at 10.6%, up marginally from 10.4% at the end of the prior quarter.
1QFY20 Highlights for the Period Ended 31st December 2019: During the period, the bank reported unaudited statutory net profit of $1.70 billion. Unaudited cash earnings for the quarter stood at $1.65 billion, depicting a rise 1% year over year. The bank reported sound asset quality with credit impairment charges plummeting by 21% to $185 million as compared to the quarterly average of 2HFY19.
What to Expect: The bank remains on track to focus on strong capital base and provide sound liquidity to customers. It will continue to bolster its technology environment to provide better experiences to its customers.
Stock Performance
The stock of National Australia Bank is trading at $18.410 per share on 13 March 2020, depicting a rise of ~1.544%. The total outstanding shares of the company stood at 2.95 billion, and its 52-week low and high is $15.55 and $30.00, respectively.
Lovisa Holdings Limited (ASX: LOV)
Lovisa Holdings Limited is involved into retailing of fast-fashion jewellery and accessories. The company has more than 1,360 employees, across Australia, New Zealand, Europe, Asia and South Africa.
1HFY20 Financial Results for the Period Ended 31 December 2019: During the period, the company reported revenue of $162.8 million, an increase of 22.2% on year over year. It also witnessed growth in store numbers, throughout most of the markets. NPAT came in at $26.7 million, up 9.1% year over year. For the same period, the company declared fully franked interim dividend of 15 cents per share.
What to Expect: The company remains dedicated towards expanding its store network in FY20 as compared to FY19.
Stock Performance
The stock of Lovisa Holdings is trading at $6.97 per share on 13 March 2020, depicting a decline of ~1.135%. The company has a market capitalisation of $757.59 million as on 13 March 2020. The total outstanding shares of the company stood at 107.46 million, and its 52-week low and high is $6.36 and $14.13, respectively.
