The Australian share market has enjoyed a gain of around 13% since the start of April, and while this would be welcome news for most shareholders, it has made finding bargains quite a difficult task.
This is highlighted by the point that there are only a handful of shares trading at 52-week lows and many of them are far from being investment grade material.
Despite this, I think the following three shares could offer investors the potential for attractive upside gains:
Mcgrath Ltd (ASX: MEA)
This might be an odd choice considering the company itself is fairly negative on the short term outlook for the residential property market, citing challenging conditions as a result of unusually low listing volumes. Investors who believe this is a short term issue, however, could consider McGrath as a contrarian investment.
The property markets in Sydney and Melbourne have remained surprisingly strong, as highlighted by an increase in auction clearance rates, and this should be a positive for McGrath especially if this level of activity is maintained when listing volumes begin to pick up.
The shares have been hit fairly hard since their December 2015 listing and are currently trading around 45% below their $2.10 listing price. According to Bell Potter, the shares are trading on a forecast FY16 P/E ratio of around 10 and the broker also has a 12-month price target of $1.60.
Tassal Group Limited (ASX: TGR)
Tassal shares have fallen by around 20% over the past six months thanks to an underwhelming set of first half results. The De Costi acquisition has yet to really impact the company's bottom line, although it is expected to make a bigger contribution in the second half.
If this occurs, I think there is a good chance the share price could rally higher considering the shares currently trade on a undemanding P/E ratio of around 11.
Although much of the short term success is now dependent on how the De Costi business performs, the longer term investment proposition remains quite attractive. The demand for healthier food options, including salmon and seafood, is only expected to grow and this should provide a nice tailwind for Tassal.
Macquarie Group Ltd (ASX: MQG)
Macquarie was once primarily an investment bank but has now transformed itself into more of an asset manager with around $477 billion of assets under management. This has proven to be a much more resilient and stable business model and the group now earns around 70% of its earnings from its annuity-style businesses.
In light of its current business model, there is an argument to suggest Macquarie's shares should be valued more like that of a fund manager and this would see the shares trade on a significantly higher valuation multiple.
Nevertheless, the shares still appear undervalued at current prices, trading on a price-to-earnings (P/E) ratio of around 12 and an attractive dividend yield of 5.3%.
