In this article we'll discuss two stocks that we think have great future prospects. We'll reveal their names later but, for now, will refer to them simply as stock A and stock B.
Stock A owns airports. We think the economics of its investments are very attractive and that it has excellent long-term growth potential. We've long recommended this stock and have twice upgraded it to our second-highest recommendation, once in issue 116/Nov 02 (Buy—$0.87) and again in issue 127/May 03 (Buy—$1.17). It was a Long Term Buy for a couple of months between those two recommendations. The group has a lot of debt, which makes estimating its true value somewhat difficult, but we think its value is greater than $2.50 and, depending upon what happens in the aviation industry over the next few years, perhaps more than $3. That stacks up nicely compared to its current stock price of $2.06.
Stock B is a leading construction and contract mining company. It has a very long history of profitability and stable management, and it possesses a huge order book. It's currently trading at $1.79 and we've been strongly recommending it of late. In fact we upgraded it to an outright buy in issue 151/May 04 (Buy—$1.57). We feel the stock's true value is closer to $2.40 than the current price.
So there they are, two stocks trading around $2 which we feel are underpriced. But there's a catch, which we'll reveal after a little more discussion. Firstly, though, we wish to point out that both stocks have remarkably similar market capitalisations (see Shoptalk below). Stock A's is $2.5bn and Stock B's is $2.4bn. That's just a coincidence, but it's an interesting fact given the concept we're about to explore.
It's now time to tell you the names of these two companies. The first, Stock A, is Macquarie Airports and the other is Leighton Holdings . We can almost hear the howls of protest from shrewd subscribers at this point: Leighton shares aren't 'around $2'—they're 'around $9', which is of course correct. We simply divided Leighton's share price by five.
Visit The Intelligent Investor for the rest of this article on Two great stocks for about $2 to find out more on sharemarket terms