3 Best ASX Undervalued Stocks To Buy Now

What are the most undervalued stocks right now?

Under the Radar Report has come up with three ASX undervalued stocks trading on the ASX with share prices that are cheap and positioned for growth.

These ASX undervalued stocks include the shipbuilder Austal (ASB), the property trust Ingenia Communities (INA) and the salmon producer Tassal (TGR). All undervalued stocks have market caps between $770m and $1.8bn.

Read more about Investing in Small Caps. Why we picked these ASX Small Cap gems and their outstanding performance.

Why invest in ASX undervalued stocks?

Invest in ASX undervalued stocks for growth and to reduce your risk. Overpaying for a stock is the biggest mistake that an investor can make. You don't want your hard earned money going towards an overpriced stock. Don't chase share prices and buy quality growth stocks to really boost your portfolio's opportunity for growth while reducing your risk.

How to find an undervalued stock ASX

To find an undervalued stock ASX, look at growing sectors including Medical Technology, Buy Now Pay Later, and lithium stocks. We also look at a company's balance sheet to ensure the company is producing a solid amount of cash after paying for its day to day requirements.

We also look into the leadership and management of a company to gauge their performance. Read more about our 7 steps for picking Small Cap Stocks.

You should also be looking to invest 25 per cent of your share portfolio in Small Caps, 25 per cent in cash, and 50 per cent in Blue Chips. Read more about the three steps to build a growth portfolio.

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Austal (ASB)

Sector: Manufacturing
Market Cap: $841.5m
Latest Share Price: $2.26
Dividend yield: 3.8 per cent

The ASX undervalued stock is a global designer and builder of ships. Its main shipyards are in WA and in the US. It designs and manufactures defence and commercial ships. It specialises in twin hulled aluminium ships and ferries.

Austal currently builds two vessel types for the US Navy, Expeditionary Fast Transports (EFTs), and Littoral Combat Ships (LCS). It is more than half way through multiple ship orders for both types, and has been awarded further vessel contracts to extend the initial orders. It is building 21 vessels for the Australian government's $900m 30 year Pacific Patrol Boat replacement at its shipyard in Henderson WA and will be servicing them through its facility in Cairns.

Austal receives large cheques from the US and Australian governments for an essential service. The stock has bounced back after it disappointed in a four way competition for the US guided missile frigate program. Subsequently, its share price resilience has been on full display. Since that disappointment earlier this year, this undervalued stock upgraded FY20 earnings and then announced a US$50m injection from the US Department of Defense into its Alabama plant.

Ingenia Communities (INA)

Sector: Property
Market Cap:$1.8bn
Latest Share Price: $5.58
Dividend yield:1.8 per cent

We have been covering this undervalued stock ASX for eight years. Ingenia owns, operates and develops affordable accommodation for seniors. The company essentially targets the over 55 market (downsizers and retirees) offering accommodation based on either a land lease model where a person buys a home in an Ingenia community and rents the land on which the home sits on, or just rents the home. The company also services the tourism sector with its portfolio of camping, caravan and cabin accommodation.

The undervalued stock ASX has impressed because of its focus on the growing ageing demographic, operating aged care communities, as well as providing manufactured accommodation, which produces an impressive double digit return on capital. Because of this undervalued stock, you don’t have to be rich to afford a comfortable retirement!

Since we first covered this stock it has been increasing its distributions, but it has also been raising even more capital. A property trust can only grow if it has money to invest. As a result of this undervalued stock’s innovative capital light model, Ingenia’s return on that capital has exceeded its costs and its shares have steadily risen. Fast forward to today and a company whose market cap was a couple of hundred million is now $1.8bn and it’s a member of the S&P/ASX200 property trust index.

Although this stock has a slender yield, it was one of the few in its sector to raise money during the COVID-19 crisis at a premium to its net tangible assets. Following its latest $175m equity capital raising at $3.50 a share the trust is back on the acquisition bandwagon.

Tassal (TGR)

Sector: Food
Market Cap: $769.6m
Latest Share Price: $3.69
Dividend yield: 3.9 per cent

This undervalued stock ASX is Australia's largest producer of salmon, which is in demand from big supermarkets because of its protein rich qualities. It's also a business that is heavily protected in Australia from cheap imports because of a gill disease found in salmon. In October 2015 it purchased the De Costi seafood distribution business for $50m plus earnouts, and in 2018 paid just over $30m for a large prawn farming operation, Fortune Group.

We almost lost our appetite on the news that the humble salmon may have been responsible for a fresh outbreak of coronavirus in Beijing and China’s subsequent indication of restrictions on the pink fish. We got hungry more recently when China agreed with global experts that its unlikely food trade was responsible and is no longer going to impose restrictions.

The fact is that this undervalued stock doesn’t export much salmon into China. The Tasmanian company’s trade is mostly domestic. The excitement in the undervalued stock ASX is the growth of its prawn business, which has escaped any sort of international approbrium.

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Richard Hemming

Richard Hemming

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Richard is a leading market commentator and expert on ASX Small Caps

www.undertheradarreport.com.au provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

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