The market's recent volatility has put some of Australia's favourite stocks back in buy territory. Here are 5 S&P/ASX200 (ASX: XJO) (^AXJO) companies that you should seriously consider adding to your watchlist.
Wesfarmers (ASX: WES) has been a consistent performer since for the past 12 months, rising over 40%. At current prices however it may be considered slightly expensive, but is still not at its 10-year high of above $45 back in 2007. The company's fully franked dividend of 4.4% makes it appealing to SMSFs and other long-term investors alike. Wesfarmers makes the list because it is more diversified than its number one rival Woolworths. It has operations outside of its trademark Coles business, which include Kmart, insurance products, resources, energy and fertilisers and Bunnings.
BHP Billiton (ASX: BHP) has been undervalued by many investors for a while and it may soon see investors start to catch on. Not only is it Australia's biggest company but with the exception of Rio Tinto (ASX: RIO), it is the cheapest in terms of price to earnings of the top 20 Australian stocks. The reason why I'd buy this stock ahead of Rio is similar to the Wesfarmers Woolworths point made above — it is more diversified. Rio receives 47.7% of its revenue from iron ore markets which, based on current commodity prices and expectations, makes it less attractive than BHP's 31%. Anywhere below $33 is a great price for this stock.
In Australian markets, you couldn't have a strong defensive portfolio without some part of it containing one of the banking or financial institutions. If I had to choose (and I did) out of the big four banks it would be ANZ (ASX: ANZ). ANZ is the only big Australian bank that is exciting at current prices. The big 4 banks' share prices rose 50% or more in the past year whilst profit climbed marginally. Sure they made $13 billion but that was purely by cutting cuts and making normal returns from pre-existing markets, rather than by seeking profit elsewhere. Perhaps the exception is ANZ, which draws only 51.5% from its Australian and New Zealand Retail and Commercial businesses. Since it implemented its 'Super Regional Strategy' in 2007, the strategy has been costing money, but this year will mark the first that it begins to break even.
Focusing on safety is usually easier than the doing it the other way around and taking risks and making large returns. However at the moment stocks are generally said to be trading at 'fair' value, which makes stock picking harder, but Cochlear (ASX: COH) is one of those stocks I feel the market has got wrong. The past few months have been tough for the maker of implantable hearing technologies, with its share price dropping from around $80 in February. Last week's volatility has made it even more enticing. It sits in a league of its own and although there is some pressure coming from cheaper Chinese products, it's by far the best at what it does. Forecasted EPS is only expected to go up for this stock as it begins to get back on track after having some concerns with one of its recent products and the high Australian dollar.
GPT Group (ASX: GPT) is an outsider to many portfolios but has been a consistent performer since the GFC. If property prices begin to get back on track in coming years, this stock could potentially trade much higher. It offers a 5% dividend and good balance sheets. This stock is trading at a premium, but that may be a slight bit of a value trap as the market has seemed to factor in analysts' expectations that it's forecasted EPS will take a hit this year. Perhaps they're right, perhaps they're wrong. I think it will be wise to wait until the next report is released after the financial year and let the market adjust before entering, after all, being patient doesn't lose you money.
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Of the companies mentioned in this article Motley Fool contributor Owen Raszkiewicz owns shares in Cochlear, ANZ, BHP Billiton and Rio Tinto.
