A number of growth stocks are now looking cheap after a price pullback of shares with higher price/earnings ratios. Of course, this just makes these stocks better value and more attractive.
Even if the prices of these stocks do go lower in the short term, the businesses will grow and the long term returns should take care of themselves.
As a potential Fed interest rate rise gets closer, the following stocks are getting better value every week, which is why they're on my Christmas list:
Class Ltd (ASX: CL1)
The self-managed super fund (SMSF) cloud software provider is down 27% in the last two months, but the potential is still as strong. The growth of the superannuation industry, investors' desire for increased control (by opening SMSFs) and the efficiency gains offered by cloud computing making Class a compelling product and investment.
Class has been one of the star stocks in the lower market capitalisation region at $343 million in size and having grown 107% during the last year. There is plenty of room for growth as desktop SMSF software still accounts for 71.8% of the market. Therefore 71.8% can still make the transition onto cloud based software, which Class has a dominant market position in.
Class shares are trading at 40x FY17's estimated earnings with a dividend yield of 1.37% which will be franked from December 2016 onwards.
Capilano Honey Ltd (ASX: CZZ)
The 100% pure Australian honey provider's share price has fallen by 12% over the last two months and 27% over five months. Capilano is ramping up its exports to Asia, as well as introducing new products to the market.
Australian and overseas consumers alike are looking to eat more natural products, which Capilano can provide. Capilano has grown its dividend each year for the past four years which I think will keep growing for many years to come.
Capilano shares are trading with a price/earnings ratio of 14.5 and a grossed up dividend yield of 3.57%.
Seek Limited (ASX: SEK)
Australia's dominant jobs portal website also has partial or controlling stakes in websites that are the market leaders in 14 countries. However, this hasn't stopped the shares falling by 14% over the last six months.
Seek could run into trouble if there's a recession, as that would result in the number of job ads reducing significantly. However, the long term growth potential would still be there. In fact a recession would make the perfect opportunity to buy Seek shares.
Seek shares are trading at 23x FY17's estimated earnings with a grossed up dividend yield of 3.95%.
The auto spare parts distributor has quite defensive characteristics, so it should do well in good times and well in bad times. That hasn't made its share price immune from declines though, as it has dropped by 22% in the last two months.
Even when automated electric cars do come onto the market, they will still have parts that break and need replacing. By having the biggest economies of scale, Bapcor should be able to offer the cheapest prices whilst maintaining profit margins.
Bapcor is trading with a price/earnings ratio of 28 and a fully franked dividend yield of 3.14%.
Foolish takeaway
I think all four of these businesses would make good long term investments and by Christmas could be even better value than they are now.
I'm interested in buying shares in each of these companies, so my preference in order at the current prices would be: Bapcor, Seek, Class and lastly Capilano. Of course, share price changes could change how attractive each one is. I think by this time next year there's a good chance I'll be a shareholder of all four.
