Sunday, November 12, 2006

Shares that might be undervalued

I have just run a scan of the ASX market which might be of some interest to those trying to find undervalued shares.

The scan assumes that the average P/E is 16, the average P/B is 2.4 and the average PEG is 1.60.

This is based ont he values available on the All Ords from Friday.

The scan consists of all companies which are 10% lower in each of the above categories ( PE is 14.4, PB is 2.16 and PEG is 1.44 or lower)

I then added a ROE of at least 10%(making money for shareholders), a profit higher than 0 (making money), and an annual return greater than 0 (meaning they are not in a dowtrend for the last year).

This leaves us with only 9 shares in the market.

 ASX Code 
 Company Name 
 P/E Ratio 
 P/Book ratio 
 P/E Growth ratio 
 Return on Equity 
 Net profit 
 1 yr. Avg. annual return 
  AIE  A.I. Limited  10.55  1.95  0.85  16.0%  4,334,152  66.0%
  ITD  ITL Limited  12.02  1.36  0.73  11.2%  3,257,385  62.5%
  AVE  Aevum Limited  13.11  1.41  0.86  10.4%  13,369,000  45.9%
  SFC  Schaffer Corporation Limited  10.30  1.85  1.07  17.5%  8,144,000  30.4%
  OST  OneSteel Limited  13.62  1.73  0.76  11.9%  187,500,000  27.2%
  RHD  Ross Human Directions Limited  8.90  1.36  0.51  14.3%  5,045,000  15.7%
  FEA  Forest Enterprises Australia Limited  7.61  0.90  0.78  11.3%  20,978,302  14.8%
  CKL  Colorpak Limited  8.23  0.92  1.05  11.1%  4,501,000  13.6%
  BSL  Bluescope Steel Limited  10.85  1.73  0.89  14.9%  337,600,000  8.7%

This is a starting point for analysing the companies. I have given the basis for the chance of finding some companies at a good value. From here you need to look at each of the companies and compare them to the sector averages, the competitors and you need to read the financial analysis on each company. Assess the likely future opportunities this company may have and why theya re a good or bad bet for the future.

For instance Bluescope Steel Ltd came up in the list but they actually have a higher PEG than the sector. Also they are facing increased costs for their material due to commodity prices rising in the last few years. A further threat is that they are competing with new steel mills popping up all over Asia (some of their own are there) and these new mills are running on newer technology which offers their competitors a major advantage in productivity terms.

For these reasons I would think carefully about Bluescope Steel Ltd and its potential to grow and increase its profit.

On the other hand Aevum Limited is responsible for returement living and aged care facilities. The baby boomers are moving into this age bracket and there may be an increase for the facilities run by Aveum Ltd. It has been grwoing each year, they have a great profit margin and their is a definite chance of major growth in the years to come. They are significantly under PE, PEG and PB for the sector and even thought they have shot up from $1.65 to $2.25 in the last 2 months they still appear to be undervalued.

Hope this helps a few people understand how I look at my stocks and come up with some selections.

Good Luck Investing.

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