The Australian stock markets mid-year sale

Thanks to the recent falls in the share market, there are many stocks trading at what I think are bargain prices. When you see headlines like “$33 Billion wiped from Australian share market” and “Australian market loses $33 billion in one day”, its time to go bargain hunting. The stock market is irrational and many companies’ share prices have been savaged for no apparent reason. While it can be hard to think of this news as good, as an intelligent value investor, you should welcome the news. It’s an opportunity to buy those stocks you covet at cheap prices. As Warren Buffett has been quoted a million times “Be greedy when others are fearful, and fearful when others are greedy”. At the moment, I think there is a lot of fear in the market, which is a good time for us.

The stocks that I’m watching are:-

Forge Group (FGE) – share price has fallen from $7.06 in April to a low of $5.16, currently trading around $5.20. There’s no apparent reason for the fall, no announcements by the company that would indicate its performance is not up to what it expects, and nothing that I can find to force the price to fall this low. Looks like a bargain to me.

Matrix Composites (MCE) – share price has fallen from a high of $9.95 in early March to around $7.70 currently. Again, no news from the company, no announcements that I can find that would affect the performance of this company. In fact, as the price of oil has risen, I would’ve expected the shares in Matrix to also have risen, given its dependence on oil exploration.

Flight Centre (FLT) – price has fallen from a high of $25 in Dec 2010 to around $21 currently. This is still a great company, and with the A$ trading at around $1.06 against the US$, I would’ve thought many Australians would be seeing this as an opportunity to travel overseas, and hence many to book their travel through Flight Centre.

Washington H Soul Pattinson (SOL) – while price has only fallen from a high of $13.40, Soul Pattinson’s share price is below its book value per share of $16.23 (as at 24th March 2011). Given Soul Pattinson is mainly an investment company and holds most of its assets in other companies, such a large discount is an opportunity to buy a stake in a diversified company with holdings in mining (New Hope – NHC), Telecoms (TPG), Building and property (Brickworks-BKW), Agriculture (through Ruralco-RHL), Healthcare (through Aust Pharmaceuticals – API), several other small listed and unlisted investments and its own diversified share portfolio.

JB Hifi (JBH) – Yes I acknowledge that Australian retailers are struggling and JB Hifi will struggle along with them. However, the struggle will end at some point in the future, and JB Hifi is a quality company. While it’s not going to generate the levels of growth it has in the past, shareholders will most likely be treated to higher dividend payments in future (as JB Hifi struggles with what to do with the cash its throwing off), while owning a great company with some growth still to come. The share price has fallen from over $20 in March 2011 down to around $16.70 currently.

Woolworths (WOW) – share price is currently around $26.80, which I think is cheap for such a great company. You are never really going to get a huge fall in the price of this company’s shares, but at this price, you are getting a piece of one of Australia’s best companies, and I think a big chance of reasonable growth in years to come.

Mortgage Choice (MOC) – shares have fallen by 21% from $1.60 in February 2011 down to around $1.26 currently. For $1.26 you get a company paying a 10% full franked dividend, plus any growth that will come in future. While it’s never going to be a major Australian company, it offers products that Australian consumers need, and I can see it being around for several years to come.

CSL limited (CSL) – One of the great Australian companies, and one of the largest blood-plasma companies in the world. Share price has fallen from $38 in January 2011, down to around $33.50 currently. Ideally I’d like the price to be a bit cheaper, but it’s not very often you get a chance to buy shares in CSL cheaply. While I don’t think the share price is cheap at the moment, I’d be prepared to buy shares at the current price for “quality”. (Which is what Warren Buffett has said about his purchase of Coca Cola shares, “not cheap, but quality”).

So that about wraps up the stocks on my watch list. I’m also watching the major banks, but given my exposure to financial stocks at the moment, its something I’m weighing up.

There are several stocks that have fallen further that the list above, but I have little or no interest in them, because they are not investment grade. Stocks like Bluescope (BSL), OneSteel (OST), Hills Holdings (HIL), Fairfax (FXJ), Myer (MYR), Seven West Media (SWM), Billabong (BBG), Boral (BLD) and Toll (TOL), just to mention a few stocks that have fallen heavily over the last month or so. While the share price may have fallen, I think they were over-priced in the first place, and current prices either reflect what they are worth, or less. I can easily see them falling more in future.

Disclaimer: I own all of the stocks I’ve mentioned above as being on my watch list. I’m looking to top up my holdings in future. Bring on the bargains!

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