Despite the volatility in Australia's major market indices recently, relatively few companies have hit new lows this week.
Of the three featured in today's article, weakening confidence in the housing boom looks to have hurt the bank and the mortgage broker, while worsening sentiment has also impacted the pathology and hospital operator.
Is weak sentiment creating a buying opportunity, or are lower prices really justified?
Primary Health Care Limited (ASX: PRY) – last traded at $3.73, down 13% for the year
When I wrote 4 reasons Primary Health is no bargain on Monday, I argued that its high and rising debt combined with negative free cash flow (this means the company must take on more debt to cover its spending) were a major negative, as was the Productivity Commission's healthcare review which could hurt pathology revenues in the near term.
While the company is quite cheap at face value – trading on a Price to Earnings (P/E) ratio of 12 – compared to similar companies like Sonic Healthcare Limited (ASX: SHL) (which has a P/E of 21), I do not feel it is a bargain.
Investors should be aware of the risks, however, given its coveted status as a healthcare business I do not believe Primary will fall substantially further in the absence of any bad news.
Suncorp Group Ltd (ASX: SUN) – last traded at $12.43, down 13% for the year
Despite a positive annual report, the market has become bearish on Suncorp in recent times with the stock now trading at its lowest point in 18 months.
However, the bank/insurer has a strong balance sheet and shareholders stand to benefit from restructuring (giving cost savings) as well as a cracking 6.8%, fully-franked dividend which appears sustainable.
There is some uncertainty regarding bank profits and bad debts in future years which has led to Suncorp's falling share price. With that said, insurance is Suncorp's biggest money-spinner and investors looking for a reliable dividend could do a lot worse.
In the near term I do not expect Suncorp to fall significantly further.
Mortgage Choice Limited (ASX: MOC) – last traded at $1.80, down 34% for the year
The pressures behind the drop in Mortgage Choice's share price are fairly obvious, with a number of market participants increasingly betting that the company will struggle to perform in future years, or if the housing boom slows.
Revenue and profit growth was very limited over the past 12 months and management's acknowledgement that Mortgage Choice lost market share will have hurt the share price.
Importantly, while investors are nervous about the housing market going forwards, it is important to note that mortgage brokers account for 52% of all loans originated and that figure is growing each year.
It is difficult to evaluate where Mortgage Choice shares are headed next, however, given the uncertainty around the housing market at present I would not buy at today's prices – despite the whopping 8.6% dividend.
