Up 5% for the year so far, much of the S&P/ASX 200 (INDEXASX:XJO) continues to look overpriced despite some big upsets in well regarded stocks.
Woolworths Limited (ASX: WOW) shares under $27, anyone?
Woolies might be cheaper now than it was five years ago – and I'm strongly tempted to add it to my portfolio right now – but with short-term headwinds and faster growth available elsewhere, I'm passing it by for the moment.
Three smaller companies have recently caught my eye, thanks to their bargain prices, incredible franked dividends, and solid growth prospects.
While we might not all have a casual $10,000 sitting in the bank – I sure don't – these stocks are a value investment opportunity for however much cash you might have available.
Coca-Cola Amatil Ltd (ASX: CCL) needs no introduction, being one of the biggest beverage bottlers in the ANZ region as well as Indonesia and Papua New Guinea. More sceptical readers may argue that Amatil is just like Woolworths – a turnaround waiting to happen – but I've done my research and believe the company is a strong buy at today's prices.
Management has forecast mid-single-digit earnings for the foreseeable future which should underpin a dividend of 4.4%, franked to 75% at today's prices. Over the medium to long term, a rejuvenated Indonesian business has the potential to be a powerful driver of profits due to rapid volume growth.
In my recent in-depth look at the company, using conservative figures, I estimated that Coca-Cola Amatil could be worth between $11.35-$12.01 per share.
Trading on a Price to Earnings (P/E) equation of 19, today's prices of $9.48 offer a significant discount to that valuation and I would buy this stock right now with a hypothetical $3,500.
Collection House Limited (ASX: CLH) is a growing small-cap debt collection and receivables management company with offices throughout Australia, New Zealand, and the Phillipines.
Despite falling levels of bad debt ever since the GFC, Collection House has managed to grow revenues and dividends every year since 2007, and management has forecast double-digit profit growth and a 3.8% fully-franked dividend for 2015.
Even better, Collection House travels under most investors' radars, allowing the shrewd to buy in at an attractive P/E of 15. Given that interest rates and bad debts are virtually at rock bottom, the only way to go is up and I expect the company will experience powerful tailwinds to its business in the years ahead.
Collection House is my largest holding of the three companies in this article, and I would invest a hypothetical $2,000 into this stock.
Last but not least is G8 Education Limited (ASX: GEM), which offers the best growth prospects of the three companies in this article, as well as an incredible 6.4% fully-franked dividend.
G8 increases its profits with an aggressive combination of debt and acquisition; each new childcare centre acquired increases the company's total size and cash flow by an order of magnitude. Eg if it had twelve centres, buying twelve centres doubles the size of the company.
The really big, easy gains have already been made, but G8 shares have plenty of juice left in them and they look to be very cheap at today's prices of $3.38 and a P/E of 18. I initially bought in at $3.61, but a collection of analysts polled by the Wall Street Journal believe the stock to be worth somewhere between $5.28 and $6.81 – a substantial upside.
G8 has a proven track record of successful acquisitions and I am happy to let the dividends roll in while I wait to see if its performance can continue. As my smallest holding of the three stocks in today's article, I would invest a hypothetical $4,500 into G8 Education shares.
