What do you get when you cross market nerves over an impending Grexit with profit downgrades and negative sentiment in a sector?
Bargains.
Or at least it looks that way for some companies, but are they really cheap or is it a case of 'buyer beware'?
Let's take a closer look:
Wesfarmers Ltd (ASX: WES) – last traded at $39.55, down 3.3% for the year
Mirror mirror on the wall, who is the biggest grocer of them all? Conglomerate Wesfarmers has been riding high for a number of years now on the back of strong performance from its rebuilt Coles business.
In fact today's prices represent the cheapest Wesfarmers has been in over two years. For Australia's fastest growing supermarket and a pile of other businesses, it looks like a good bargain. On the other hand with Australia's other supermarkets Metcash Limited (ASX: MTS) and Woolworths Limited (ASX: WOW) already falling drastically over the spectre of increased competition from Aldi and Costco it may have not such an easy ride ahead.
Like Woolworths I believe Wesfarmers is a great company to buy, but with competition intensifying and general market skittishness I believe shares could fall further in the near term.
SEEK Limited (ASX: SEK) – last traded at $13.79, down 14.5% for the year
SEEK's recent haircut was prompted by a profit downgrade in which the company said it expected second half profits to equal those of the second half 2014, despite solid revenue growth.
Management also warned that growth in financial year 2016 would be more subdued thanks to 'aggressive' reinvestment, regulatory changes to the sector and continued stiff competition. Tough competition is becoming the watchword for Australian companies and I think investors in general will have to modify their expectations for growth going forwards.
Nevertheless SEEK continues to look like a great business and while shares could fall further in the near term, I believe today's prices still offer an attractive entry point for long-term investors.
Nine Entertainment Co Holdings Ltd (ASX: NEC) – last traded at $1.51, down 29% for the year
Last and probably least, shares in television company Nine Entertainment have continued to decline after an ominous 'trading update' in early June that indicated full-year Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) would fall by 8.3% this year.
Like other traditional television companies Nine is struggling to compete with the internet and alternative media for its advertising revenue. Much has been said on the topic elsewhere, and I struggle to see how the company will turn things around given the entrenched success of many of its competitors.
Even though the company trades on a ridiculously low Price to Earnings (P/E) ratio of 8, I don't believe the decline of free-to-air media has run its course and I reckon shares in Nine will fall further over time.
