2 cheap value shares to buy this week

Finding good shares to buy in todays market is increasingly difficult. Here are two good companies with a market cap far less than book value

| More on:
assortment of australian $1 coins

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

For the many new investors that have hit the markets since the start of the coronavirus pandemic, it can be quite difficult to find good value shares to buy. On one hand you have the skyrocketing valuations of companies like Afterpay Ltd (ASX: APT) which, at the time of writing, has a valuation marginally less than Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG) combined. On the other hand you have companies like Ansell Limited (ASX: ANN) which is a great company, but trading at 10 points above its 10-year price-to-earnings (P/E) average.

I think the companies below represent very good ASX shares to buy right now. They are both in the real estate space, and each one has a market cap less than its book value. Book value refers to total assets minus intangible assets and liabilities. It is also called the net asset value.

Theoretically, this means that if you had a spare billion dollars lying around, you could buy one of these companies and immediately sell all of its assets for a profit. 

A great office share to buy

Centuria Office REIT (ASX: COF) is a great ASX share to buy and Australia's largest ASX-listed pure play office REIT. I believe that office real estate has been the least impacted by the coronavirus pandemic thus far. A report on residential real estate from the Australian Bureau of Statistics (ABS) shows that new approvals for total dwellings was down by 16.4% compared to April. In addition, GPT Group (ASX: GPT) reduced the value of its retail assets by $476.7 million, or approximately 8.8%, in response to a re-valuation. This was before the second wave of the virus hit Victoria. I expect retail assets to be even more devalued due to the current uncertainty.

Centuria Office has an occupancy of 99.2%. Importantly, the company has a weighted average lease expiry, or WALE, of 5.1 years. In addition, it manages a portfolio of high quality office assets worth $2.1 billion. At the time of writing, the company has a market cap of $1.05 billion – half of the value of its real estate portfolio. 

At its current price, Centuria Office has a trailing 12-month dividend yield of approximately 8.73% and is trading at a P/E of 13.42. This is lower than it has traded in the past five years. I think this is a great share to buy and I am contemplating investing in it personally. 

Storage assets are king

Abacus Property Group (ASX: ABP) is another ASX share to buy that is undervalued, in my opinion. It is an Australian real estate investment trust, or A-REIT, like Centuria, however it is diversified. According to the company's portfolio statement, it has a balance sheet of $3.3 billion in total property assets as at H1 FY20, a significant increase from FY19.

This breaks down into approximately; 50.6% in office buildings, 34.4% in storage space, 6.8% in small convenience shopping centres, and about 8.2% in non-core assets.

While I remain concerned over the impact to retail, it is only a small percentage of the company's portfolio. Both office assets and storage assets have been resilient in the current pandemic. Furthermore, Abacus has begun to show a growing interest in accumulating storage assets. Recently it increased its holding in rival National Storage REIT (ASX: NSR) to 8.09%. This is part of the organisation's move to a recurring annuity type income stream, instead of its previous value-add model. An approach that will result in less volatility in earnings.

At the time of writing, Abacus has a market cap of $1.81 billion. This is 45.2% lower than its stated portfolio value. In terms of net asset value, it is worth $3.41 per security, while the current share price is $2.77 per security. The company also has a trailing 12 month dividend yield of 6.68%.

I think this is one of the better value shares to buy on the ASX today.

Foolish takeaway

Finding cheap shares to buy is difficult, however the price to book ratio is a good starting point. To illustrate further, compare the value of the company's net tangible assets, against its current market capitalisation. However, this is only the beginning. You also need to make sure that the business has a solid operating model, and that management is making good decisions. This is more important than ever as we find ourselves in an unprecedented level of uncertainty. 

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »