With the Australian market continuing its excellent streak of growth, investors are finding it harder to pick out "cheaper" companies that are not yet fully priced. That's why I tend to look for beaten-down, yet quality companies with excellent future growth prospects. However, investors must make sure that they're not fooled by a low price tag. A company's shares may be cheap, but if it doesn't offer future potential, then investors risk even more capital losses.
Here are three beaten-down companies that have recently approached 52-week lows. However, only one of these three companies offers quality growth at an attractive price, while the other two are potential traps that investors need to be aware of.
1. Senex Energy
Mid-tier oil and gas producer Senex Energy Ltd (ASX: SXY) operates and develops energy resources in the lucrative Cooper Basin. However, it has recently experienced a beating, with shares falling over 14% in the last month. This free-fall is owed to a weaker-than-expected net profit after tax, which was 38% lower than FY13.
However, I think Senex is a quality Australian company with much to look forward to given its continuing endeavours to cut costs. Furthermore, Senex sits on no debt and has strong oil reserves, allowing it to capitalise on stronger demand from Australia's east coast.
Despite offering no dividends, Senex sits on an attractive price-to-earnings ratio of 14.28 and I think the recent share price weakness offers investors a great opportunity to grab a growing company at bargain prices.
2. Transpacific Industries
Although edging a bit higher this week, shares in the recycling, industrial cleaning and waste management company Transpacific Industries Group Ltd. (ASX: TPI) are nowhere near its yearly highs of $1.23. After a strong 1H 2014 report, endless restructuring efforts by the company's management have failed to satisfy shareholders, causing a massive sell-off. Adding to its unfortunate run of events, Transpacific also faced massive increases in its provisions for site remediation and a recent fatal accident, resulting in the grounding of its fleet.
Unlike Senex, Transpacific doesn't seem to have many long-term tailwinds that can drive its future earnings. In addition, its recent problems signal to me that its cheap price is "tricking" investors. Until any new information is released about Transpacific's future, I'll only be watching it from the sidelines.
3. Macquarie Telecom
Shares in the internet hosting and mobile network company Macquarie Telecom Group Ltd. (ASX: MAQ) have been smashed recently, with its share price skydiving from highs of $8.90 to a current price of $4.75. After the release of its disappointing FY14 report, Macquarie's shareholders have had little reason to stay, given a 107% fall in net profit.
Macquarie's failure to capture competitive advantages has led to its recent failures, with better, low-cost providers stealing its existing customer base and ultimately damaging its retention rates.
Companies with a lack of long-term tailwinds and competitive advantages fail to interest me, given their poor ability to sustain earnings growth. I think Macquarie's recent endeavours to cut costs is an optimistic sign. However, I won't be buying until I see these cuts materialise and its competitive position improve.
