With global markets powering, investors have the opportunity to get in early and find quality stocks that have been oversold in the short-term. Here are 2 stocks I think could be in the buy zone for the short and medium term.
A2 Milk Company Ltd (ASX: A2M)
The A2M share price is trading around 32% off from its all-time high of $17.30, which it hit earlier this year. The company has been in a controlled sell-off since reporting its earnings for FY19 earlier this year.
A2M reported group operating income of NZ$413.6 million for FY19, with operating income from Asia contributing NZ$123.9 million. The company has no debt and boasts a cash balance of NZ$464.8 million as at 30 June 2019. For FY20, A2M forecasts flat earnings before interest, tax, depreciation and amortisation (EBITDA) margins of 28.2% for the year.
The milk and infant formula sector has faced uncertainty in the later part of 2019 after regulators in China announced the introduction of new e-commerce legislature. The regulations proposed are designed to boost confidence in China's domestic industry.
Regulators proposed a goal to have domestic brands hold a 60% market share for infant formula and other goods. According to analysts from Goldman Sachs, Australian and New Zealand brands such as A2M will see minimal near-term impact to operating performance.
Recently, a note from equity analysts at Macquarie issued an outperform rating on A2M with a price target of $15.70. Analysts cited the company's strong long-term growth potential for the bullish outlook. Although a broker upgrade should not serve as a reason to buy shares in A2M, it may signal that institutional sentiment is changing towards the company.
Jumbo Interactive Ltd (ASX: JIN)
Jumbo Interactive is an online platform that has exclusive distribution agreements with leading lottery companies. The company powers the Ozlotteries.com website, which consumers with a wide range of domestic lotteries including Powerball, TattsLotto and Ozlotto.
The Jumbo Interactive share price has tanked more than 27% since 21 October following a broad sell-off in tech stocks on the ASX. Earlier this year the company reported earnings for FY19 that beat market expectations. Jumbo Interactive delivered revenue growth of 64% to $65.4 million and growth in net profit after tax of 124% to $26.4 million.
Jumbo Interactive has a strong base of online customers and remains a highly cash-generative business with no debt on the balance sheet. The company recently acquired UK lottery merchant Gatherwell for $5.4 million, providing Jumbo Interactive with expansion into the software-as-a-service (SaaS) business.
Should you buy?
In my opinion, the 2 stocks listed here are great quality companies that could be potential buys for the medium term. Both companies have excellent growth potential and are supported by strong fundamentals. I think it's important that investors first do their own research and screen stocks that fit their individual strategy before making an investment decision.
