There are always ASX share opportunities to invest in, you just need to find them.
Several areas of the economy have been running strongly over the last few months as most parts of the country lift restrictions. Some businesses look too expensive to be buys today in my opinion.
But for some other shares, I think there could be good value for both growth and income investors:
Growth share pick: Citadel Group Ltd (ASX: CGL)
Citadel is one of the good value ASX growth shares in my opinion. The core Citadel business is involved in providing software and managing data for important sectors like education, defence and healthcare. These are reliable, defensive industries. They should be good long-term clients.
Software is an attractive sector to be invested in – tech businesses can create high gross profit margins because of how little cost there is to delivering software to clients once it has been developed.
The Citadel share price has risen by 32% since the start of August 2020. But I think there could be more growth to come for the ASX share after its UK healthcare software acquisition called Wellbeing. The acquisition will raise Citadel’s recurring revenue as a percentage of total revenue and it will gain a higher earnings before interest, tax, depreciation and amortisation (EBITDA) margin.
But there are large potential selling benefits for Citadel – it can sell its Australian healthcare software to UK clients and it can sell the UK software to Australian clients. The ASX share can sell a combined package to new clients in existing markets and hopefully expand into new markets.
Citadel has already said that COVID-19 hasn’t really affected the business. The company could deliver solid growth over the coming years and I think it looks good value at under 15x FY22’s estimated earnings.
Income share pick: Vitalharvest Freehold Trust (ASX: VTH)
Vitalharvest is an agricultural real estate investment trust (REIT). It owns two types of farms: berry and citrus. The ASX share actually owns some of the largest berry and citrus farms in Australia.
The business earns rent in two different ways. It earns a fixed rental return from its farms and it also earns variable rent from a profit-share agreement with its tenant Costa Group Holdings Ltd (ASX: CGC). Vitalharvest receives a quarter of the earnings of each farm.
Most readers would know that plenty of agriculture operators have been struggling because of drought. Costa is no different – its earnings have been affected in recent times. Crumbly berries and fruit flies have also affected things for Costa, which has had a knock-on effect on Vitalharvest’s variable rent.
Despite the difficult conditions, Vitalharvest was still able to pay a distribution of 4.75 cents per unit in 2020. That amounts to a distribution yield of 6.1% at the current Vitalharvest share price. That’s a solid starting yield.
If profitability (and the distribution) returned to 2019 levels then the ASX share would offer a yield of 7.3%.
Primewest Group Ltd (ASX: PWG) taking over management of the REIT is another reason why the ASX share could be a good buy today.
The new manager plans to make acquisitions for Vitalharvest. It will still be looking for farms to buy in Australia (and New Zealand). But Primewest will also be looking for assets that are involved in food logistics such as food processing and food storage.
Those new areas may be able to provide more consistent earnings for Vitalharvest and therefore more consistent distributions.
At 31 December 2019, Vitalharvest had a net asset value (NAV) of $0.95 per share. At the current Vitalharvest share price that’s an 18% discount.
Foolish takeaway
I think both of these ASX shares look good value for the short-term and long-term. Citadel looks undervalued for its growth potential and Vitalharvest could become a more reliable business for income investors – it offers an attractive yield even though it has suffered.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
More reading
- The smartest 7 ASX shares to buy if you have $2,000
- 3 ASX dividend shares to buy for income
- Fund managers have been selling these ASX shares
- Where I’d invest $10,000 today into ASX shares
- Earnings preview: What to expect from the Costa Group half year result
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia has recommended Citadel Group Ltd. 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.
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