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2 quality stocks that could be in the buy zone

Nikhil Gangaram
Share price buy

With global markets powering, investors have the opportunity to get in early and find quality stocks that have been oversold in the short-term. Here are 2 stocks I think could be in the buy zone for the short and medium term.

A2 Milk Company Ltd (ASX: A2M)

The A2M share price is trading around 32% off from its all-time high of $17.30, which it hit earlier this year. The company has been in a controlled sell-off since reporting its earnings for FY19 earlier this year.

A2M reported group operating income of NZ$413.6 million for FY19, with operating income from Asia contributing NZ$123.9 million. The company has no debt and boasts a cash balance of NZ$464.8 million as at 30 June 2019. For FY20, A2M forecasts flat earnings before interest, tax, depreciation and amortisation (EBITDA) margins of 28.2% for the year.

The milk and infant formula sector has faced uncertainty in the later part of 2019 after regulators in China announced the introduction of new e-commerce legislature. The regulations proposed are designed to boost confidence in China’s domestic industry.

Regulators proposed a goal to have domestic brands hold a 60% market share for infant formula and other goods. According to analysts from Goldman Sachs, Australian and New Zealand brands such as A2M will see minimal near-term impact to operating performance.

Recently, a note from equity analysts at Macquarie issued an outperform rating on A2M with a price target of $15.70. Analysts cited the company’s strong long-term growth potential for the bullish outlook. Although a broker upgrade should not serve as a reason to buy shares in A2M, it may signal that institutional sentiment is changing towards the company.

Jumbo Interactive Ltd (ASX: JIN)

Jumbo Interactive is an online platform that has exclusive distribution agreements with leading lottery companies. The company powers the website, which consumers with a wide range of domestic lotteries including Powerball, TattsLotto and Ozlotto.

The Jumbo Interactive share price has tanked more than 27% since 21 October following a broad sell-off in tech stocks on the ASX. Earlier this year the company reported earnings for FY19 that beat market expectations. Jumbo Interactive delivered revenue growth of 64% to $65.4 million and growth in net profit after tax of 124% to $26.4 million.

Jumbo Interactive has a strong base of online customers and remains a highly cash-generative business with no debt on the balance sheet. The company recently acquired UK lottery merchant Gatherwell for $5.4 million, providing Jumbo Interactive with expansion into the software-as-a-service (SaaS) business.

Should you buy?

In my opinion, the 2 stocks listed here are great quality companies that could be potential buys for the medium term. Both companies have excellent growth potential and are supported by strong fundamentals. I think it’s important that investors first do their own research and screen stocks that fit their individual strategy before making an investment decision. 

The post 2 quality stocks that could be in the buy zone appeared first on Motley Fool Australia.

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Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Jumbo Interactive Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019