Given the choice, most investors would prefer to see share prices bounding higher over falling flat.
However time has shown that investors who purchase 'cheap stocks' (on low price-earnings multiples) have performed far better than those who do the opposite.
Obviously much more goes into a valuation-based investing approach than a simple P/E or PEG ratio; however it can be a good starting point.
Now, I'm not talking about those dirt cheap iron ore and coal miners or mining services businesses. They're value traps.
However, I am talking about quality, dividend-paying companies, with competitive advantages and a strong track record.
These golden opportunities don't come along very often. But when they do, you should be prepared to back yourself and capitalise on them.
Right now, despite the market trading at a price-earnings ratio (excluding resources stocks and financials) of around 19, you might think there are none available.
In my opinion, however, Woolworths Limited (ASX: WOW) and Coca-Cola Amatil Ltd (ASX: CCL) are exactly that.
I'd like to think every Australian knows what Woolworths does – it's one of our leading supermarkets.
Coca-Cola Amatil, or CCA, on the other hand is Australia's distributor of Coca-Cola and Beam branded beverages. It also distributes Coca-Cola to five neighbouring countries including New Zealand and Indonesia.
Here's why they're worth buying right now…
- Dividend yield. Respectively, Woolworths and CCA are forecast to yield dividends of 4.7% (100% franked) and 3.9% (75% franked). Ask around, I bet that'll trump any interest rate from a bank term deposit in 2015.
- Brand power. Woolworths had the most valuable Australian brand in 2014 with a worth of $12.1 billion, according to a recent report issued by Brand Finance. Another report, by Millward Brown, found Coca-Cola to have the #1 soft drink brand in the world (and #8 overall!) with a brand value of $67 billion.
- Recent underperformance. In the past three years, Woolworth shares have risen 13%, whilst CCA is 13% lower. That compares to the S&P/ASX200's (ASX: XJO) (Index: AXJO) return of 36%!
Are there risks?
There are risks to any investment.
Indeed CCA and Woolworths shares are cheap because the market believes those risks are material.
But if your think Woolies and CCA will still be around in 5 or 10 years' time in the same capacity as they are today, now will likely prove to be a great time to buy these fallen angels.
I know I have…
