One of the major challenges for investors at the moment is finding companies that offer bright growth prospects. That's because many companies on the ASX are seeing their bottom lines fall at the present time, with commodity prices being weaker and increasing concerns regarding the near term outlook for the wider economy.
And, even if you can find stocks with great growth prospects, sometimes their valuations already reflect a best case scenario. In other words, there is little in the way of a margin of safety, which means that share price gains may not be all that impressive or, indeed, that likely.
However, here are three stocks that as well as having excellent earnings growth potential, also trade at appealing prices.
CSL Limited
Biopharmaceutical company, CSL Limited (ASX: CSL), has a stunning track record when it comes to sales growth. For example, it has managed to increase its top line at an annualised rate of 11% during the last ten years, with margin improvements during the period meaning that its bottom line has risen at a faster rate of 21.4% per annum during the same time period.
Certainly, CSL is benefitting from improving demographics, with an ageing population across the developed world meaning that demand for its products continues to rise. This means that, beyond the next couple of years it has a bright future and, in the meantime, annualised growth of 20.2% in the next two years makes a price to earnings (P/E) ratio of 25.5 seem worth paying.
QBE Insurance Group Ltd
The last few years have been challenging for QBE Insurance Group Ltd (ASX: QBE), with all of its various divisions delivering sub-par performance. In fact, in the last ten years, QBE's net profit has fallen at an annualised rate of 7.3%.
However, last year represented a major change from the 'norm' for its investors, with QBE posting a positive annual performance which showed that its outlook is improving and, looking ahead, it is forecast to increase its bottom line by 25% this year, and by a further 27% next year.
Despite this, QBE still trades at a discount to its sector, with it having a P/E ratio of 18.6 versus 19.4 for the sector.
Oil Search Limited
On the face of it, oil and gas stocks have been a poor place to invest in recent months, with profits tumbling and investor sentiment declining. Oil Search Limited (ASX: OSH), is bucking the trend and, with the Papua New Guinea liquefied natural gas (LNG) project coming onstream, it is currently in the midst of significantly improved financial performance.
For example, Oil Search is forecast to increase its bottom line at an annualised rate of 13.2% during the next two years and trades on a price to earnings growth (PEG) ratio of 1.95. That's far less than the wider market's PEG ratio of 2.34, and lower than the energy sector's PEG ratio of 7.72. Furthermore, with a beta of 1.08, Oil Search is unlikely to be a volatile stock, which increases its appeal given the uncertainties in the wider market.
