Taking advantage of the inefficient market

Sometimes Mr Market can throw investors interesting opportunities. However, the question that most of us will ask is: when is the right time to buy?

The behavioural biases that surround this aspect of investing often defeats even the most experienced investors, as they try to wait for the best price. After all, everyone loves a bargain don’t they?

The sad truth, however, is that actually buying at the bottom is a feat achieved by a lucky few, just as selling at the top is more down to luck than judgement, despite what those with 20:20 hindsight would have you believe.

So with this in mind I’ve selected a trio of quality companies: FTSE 100 retailer Next (LSE: NXT); budget airline easyJet (LSE: EZJ) and terrestrial broadcaster ITV (LSE: ITV), all of which I believe offer long-term patient investors an opportunity for market-beating capital growth and market-beating income – especially given the share price falls of late.

As we can see from the chart, all three of these shares have underperformed recently, driven by short-term views about the company’s prospects going forward. However, I believe this gives investors an opportunity.

Let’s take a more detailed look at each one.

Out of fashion

The market hasn’t been kind to one of the UK’s best known retailers, Next.

Since the shares hit the December high of £80 each, the general direction has been down following a series of ill-received trading updates, which left the market selling the shares off to the charity shop.

A combination of too-warm and too-wet weather coupled with some missteps in the supply chain caused sales to slip and the shares with them to sub-£50 at the beginning of May.

And although the shares have recovered a little since, they’re well off their highs and priced on an undemanding forecast PE of 12 times earnings, which looks cheap for such a quality company to me and it would appear to management with Next continuing to buy back its shares.

Plane sailing

While investors are unlikely to see earnings growth like the last five years at easyJet, earnings are still heading in the right direction, despite the tragic events in Europe so far this year and the uncertainty they bring.

Indeed, at last week’s interim results the board was confident that passenger numbers, revenue and profit would grow, and as a result of the board’s confidence in the future success of the business, the annual dividend payout ratio will increase by a quarter to 50%

And with the shares trading on a single-digit forecast PE of 9 times earnings and expected to now yield 5%, I think that the market is missing a trick.

Time to tune into ITV?

Another poor performer with shares down by around 30% over the last 12 months is ITV. While it’s true that there’s less speculation about a possible takeover approach, I believe the shares on their own are a sound investment.

Despite concerns in advertising due to fears in relation to a possible Brexit vote in June, management is still expected to deliver double-digit growth in earnings with forecast earnings expected to grow by 20% to 17.5p per share, according to data from Stockopedia.

This places the shares on a 2016 PE of less than 12 times earnings and a near 5% yield before any further special dividends, which could see that yield double!

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Dave Sullivan owns shares in ITV. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.