Assuming you're buying a good company, it's a no-brainer that the best time to buy shares is when they're dirt cheap.
Ironically however, many investors steer a wide path around companies that are bumping along at low prices, perceiving them to be more risky. Markets are notorious for overreacting, and the patient investor can occasionally pick up a bargain by being greedy when others are fearful.
Here are three stocks that have been beaten up by the market recently, and my take on whether they offer value at today's prices:
Capitol Health Ltd (ASX: CAJ) – last traded at $0.325, down 52% for the year
Shares in Capitol Health have taken a pummelling over fears that a government review of the healthcare system is likely to impact imaging volumes in its clinics. The fall was compounded by a very lofty valuation of up to 48 times earnings earlier this year.
Investors are also sceptical of Capitol's memorandum of understanding with Enlitic (which could require a USD$10 million investment), wondering whether the investment in 'data-driven' healthcare will contribute to earnings.
Either way, Capitol is a well-positioned player in a growing business, notwithstanding investors selling on short-term fears. I believe the company has potential and I would consider buying shares under 30 cents, after the impacts of the government review become apparent.
Yellow Brick Road Holdings Ltd (ASX: CAJ) Last traded at $0.355, down 39% for the year
Yellow Brick Road has seen a heavy sell-down in recent times as investors have twigged to the dangers of increased regulation and interest rates (and possibly falling house prices) in our mortgage market.
Despite its exposure to the mortgage market, Yellow Brick Road is also working to offer a full range of financial services to customers including insurance, accounting, wealth management and lending services. Management indicates that its recently announced securitisation program will lead to higher profit margins as well as freeing the company to adjust its rates further.
The company is now profitable on an underlying basis (excluding acquisitions, integration and abnormal costs) and with a number of products declared 'best in class' by independent experts I believe Yellow Brick Road will deliver further growth in the future. The company looks to represent decent, albeit moderately risky value at today's prices.
BHP Billiton Limited (ASX: BHP) – last traded at $19.80, down 39% for the year
Just when you thought your BHP shares couldn't fall any further, comes the environmental disaster at the company's joint-venture Samarco mine in Brazil. Shares lost another 10% in recent days, wiping a further $6 billion off the value of the company.
I once wrote that I was hoping to buy BHP shares below $30, but that was pre-Samarco, pre-iron ore price collapse, and pre-borrowing to pay dividends. With some of the iron ore weakness yet to make its way through to profits and significant uncertainty regarding the costs of Samarco and the value to shareholders of a 'progressive dividend policy', I have trouble seeing a bargain in BHP. Investors looking to pick up shares might be better served to watch and wait a while longer.
