While the plunging stock markets of recent weeks have caused panic and alarm among many investors, it presents an opportunity to pick up a number of bargains. Certainly, not every company that has posted a disappointing share price performance of late is worth buying. But, with the ASX now falling by 6% since the turn of the year, there are opportunities to be greedy when others are fearful.
Clearly, no stock is without risk and, as such, a wide margin of safety can help to stack the odds in the investor's favour. On this front, consumer stocks such as conglomerate and owner of the Coles supermarket brand, Wesfarmers Ltd (ASX: WES), appears to fit the bill. It trades on a price to sales (P/S) ratio of just 0.73, which is considerably lower than the ASX's P/S ratio of 1.33.
A key reason for this low valuation is, of course, weakening investor sentiment resulting from doubts surrounding the future prospects for the consumer goods sector. And, while the threat of a slowing Chinese economy and its impact upon the Aussie economy is a cause for concern to investors in consumer goods companies such as Wesfarmers, the RBA appears to be ready and willing to provide a stimulus in the form of a loose monetary policy. This should provide consumer confidence with a boost and help to support Wesfarmers' share price, thereby improving its risk/reward profile.
Also set to benefit from this is auto, leisure and sports retailer, Super Retail Group Ltd (ASX: SUL). Its earnings are forecast to rise at an annualised rate of 15.7% during the next two years and, despite such impressive prospects, it trades at only a small premium to the ASX based on the price to earnings (P/E) ratio. In fact, Super Retail's P/E ratio is just 15.6 versus 14.9 for the wider index and, when combined with its growth rate, it equates to a price to earnings growth (PEG) ratio of just 1, versus 1.37 for the ASX.
In addition, Super Retail also has a very healthy dividend yield of 4.7% (fully franked) and, with dividends per share expected to rise by 7.3% per annum during the next two years, it is set to yield as much as 5.4% in financial year 2017. This, though, would not put the company's finances under strain since Super Retail's shareholder payouts are well-covered by profit at 1.5 times.
Similarly, Wesfarmers remains a top notch income play, with it currently yielding a fully franked 5% and having an excellent track record of dividend increases in recent years. In fact, Wesfarmers has raised dividends per share by over 12% per annum in the last five years and, while they now represent 91% of profit (and hence may rise at a slower rate in future), Wesfarmers is likely to become increasingly popular as a core income stock should interest rates fall further.
So, with the share prices of Wesfarmers and Super Retail falling by 6% and 7% respectively in the last month, now seems to be a perfect opportunity to buy them for the long term.
