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When it comes to investing, few people in the world have as great a track record as legendary investor Warren Buffett.
His approach is simple – he tries to find companies that are undervalued relative to what he calls their intrinsic value.
Simply put, he tries to find companies that have good fundamentals, yet are trading at a price that’s cheaper than the company is worth.
The good news is that there are plenty of great companies that are undervalued, if you’re willing to look.
Seven West Media (ASX: SWM)
Seven West Media owns the Seven Network, which is Australia’s second-largest commercial television network by both audience size and advertising market share.
With demand for free-to-air TV coming under attack by on-demand services, Seven West Media has suffered a 90%+ fall in its’ share price over the past five years.
Its market cap of 150 million makes it very cheap relative to the $1.5 billion in revenue it generates every year.
AGL Energy Limited (ASX: AGL)
AGL Energy Limited operates Australia’s largest retail energy base, alongside a portfolio of wholesale energy contracts and assets.
As a utility, it’s often regarded as a defensive stock but that doesn’t mean it cannot be undervalued – which certainly appears to be the case with the stock near the lowest prices we’ve seen in the past three years.
With a history of strong and steady dividends and a P/E ratio of 12, below Australia’s long-term average of 15.
The stock also pays a dividend of 6.41%.
Flight Centre Travel Group (ASX: FLT)
Few stocks have suffered in recent years as travel stocks, and Flight Centre Travel Group is no exception.
With retail services in both leisure and corporate travel sectors, alongside in-destination travel experiences, they’ve long been a favorite of many Australians.
The price of the stock has fallen 75% in only the past six months and is currently trading at an incredibly low P/E of 5.7.
This is a perfect example of a stock that’s fallen out of favor due to temporary forces and presents a potentially strong undervalue play.
Charter Hall Group (ASX: CHC)
Charter Hall Group is a developer and property manager which manages over 1,000 properties across a range of retail and commercial sectors.
Prices are below their recent highs, but the stock still presents an attractive 11.6 P/E with a dividend yield of 3.48%.
Beach Energy Limited (ASX: BPT)
Beach Energy Limited is an energy company specializing in the exploration, development, and production of oil and gas.
It operates from five producing basins across both Australia and New Zealand, making it one of the key suppliers to the Australian east coast gas market.
Despite turning over a respectable profit, BPT continues to trade below value, at an astounding P/E of 5.8 and a dividend yield of 1.37.
Conclusion
As with any stock, just because the price has gone down doesn’t mean it can’t go lower.
That’s why when attempting to pick undervalued stocks, ensure they are companies that have solid fundamentals that are likely to continue into the future.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
