Investing in the stock market is not all that different from buying groceries, clothes or anything else you spend your hard-earned cash on. Often, the more you pay, the better quality you get. However, that is not always the case, since there are often bargains to be had in both investing and any other purchase and, similarly, paying a lot of money for an expensive stock or consumer item does not guarantee investor/consumer satisfaction.
Clearly, there is a big difference between the price of a company’s shares and their value. Just as buying a luxury coat at a discount to its retail price, or obtaining an offer for ‘buy one, get one free’ at the supermarket can provide the consumer with value for money, buying a company’s shares for less than their intrinsic value can mean that profits in the long run are stunning.
Sometimes, though, a company’s shares are cheap for a reason and are more akin to a value trap. In that scenario they may appear to offer good value but, if the company’s financial performance falters then it can equate to losses, rather than profits, for its investors.
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This, though, does not appear to be the case for shareholders in Asia-focused bank Standard Chartered (LSE: STAN). It currently trades on a forward price to earnings (P/E) ratio of just 9.2 which, for a bank with exposure to what is set to be the fastest growing market for banking products in the word, appears to offer excellent value for money.
Certainly, there is a long way for Standard Chartered to go before it realises its full potential. Its new management team is focusing on tightening up its risk controls and, in the short run, this is likely to cause some turbulence in its financial performance. In fact, Standard Chartered’s bottom line is expected to fall by 33% this year but, with growth of 27% being forecast for next year, it could bounce back a lot quicker than many investors currently realise, making now a great time to buy a slice of the business.
Similarly, oil services company Petrofac (LSE: PFC) is enduring a challenging period as the amount of investment made by oil companies declines. And, with demand for oil being surpassed by supply, the chances of a rising oil price seem somewhat remote (in the near-term at least). This, then, is set to cause a fall in Petrofac’s earnings of 61% in the current year but, with its bottom line forecast to rise by 128% next year, Petrofac trades on a forward P/E ratio of just 8.9. This indicates that it offers a very wide margin of safety so that even if its financial performance does disappoint versus guidance in the short to medium term, its risk/reward ratio is still likely to be very appealing.
Meanwhile, convenience store operator McColl’s (LSE: MCLS) continues to suffer from a high level of competition within the sector. Like-for-like sales are still under pressure and, as a result of this (as well as remaining competitive on price), the company’s earnings are set to offer little in the way of growth over the next couple of years. However, where McColl’s has huge appeal is with regard to its dividends. The stock currently yields a whopping 6.4% and, with dividends being covered 1.6 times by profit, they appear to be very sustainable. As a result, McColl’s P/E ratio of 10 seems to be highly attractive at the present time.
