As the sharemarket boom matures, we draw ever closer to the next bear market, or at the very least a technical correction which will sit the market back on it's heels. Either way the need to be in stocks which have not risen too far on the back of general market hype is very important. When the next market correction hits, the spotlight will be on sustainable earnings and realistic P/E ratios. Stocks which have been inflated to P/E's of 30+ will generally be harder hit than those which are priced closer to the market average of around 15. Of course there are a few gems out there which for stock specific reasons have been over looked during the boom of the past 3 years, but which at present are now playing catch-up to the rest of the market and represent an investment which provides downside protection when the market correction hit's. it is worth seeking exposure to stocks now which are underpriced, although they are as rare as hen's teeth.
CCI Holdings (CHL) is in the booming mining services sector supplying testing services to mainly the coal industry, an excellent market and one which they hold a premium position within. For reasons due to board room ructions and accounting re-structures the stock has been considered an ugly duckling. However the underlying businesses have always been strong, and now that the holding company accounting restructure is concluded and debt levels have been reduced to comfortable levels, the stock represents great value having posted EPS of 1.1c for the 6 months ending Dec 31 2005. (This puts the stock on a P/E of a mere 9 times current earnings) The company is expecting a period of 5 years of growth as the demand forr higher tonnnages of export coal grows.
The downside risk in this investment is low, and the upside potential is enticing. This one is well worth a look as it's fundamentals now look very attractive, and the scope for a return to dividend payment provides an potential opportunity for further reward.
CHL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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