With the prospects for the global economy being uncertain, it may feel as though growth stocks are a thing of the past. After all, the Aussie economy is enduring a challenging period and, with China enduring a painful transition as it moves from being focused on capital expenditure to a more consumer-biased economy, it may seem as though there is a distinct lack of growth on offer for investors in the stock market.
However, that is simply not the case. Certainly, growth may be harder to come by at the present time – especially since the outlook for a number of commodity stocks is being hampered by low prices and major banks are being forced to hold additional capital by regulators. But, as CSL Limited (ASX: CSL) and Domino's Pizza Enterprises Ltd. (ASX: DMP) show, it is very much on offer at the present time.
In fact, pharmaceutical company, CSL, is forecast to increase its earnings by 9.9% in the current financial year, followed by growth of 14.9% next year. Part of the reason for this is that it is far less affected by the performance of the global economy than most stocks, with its earnings being less highly correlated with the macroeconomic outlook than the majority of its index peers. Similarly, its beta of just 0.6 indicates that its shares may also buck the recent trend towards high volatility, with CSL offering its investors a far more stable shareholder experience than the ASX.
Domino's, meanwhile, is expected to post growth of 24% in the current financial year, followed by growth of 26.7% next year. This is hardly surprising and would follow growth of over 35% in its most recent financial year. Part of the reason for this growth is that Domino's is muscling in on non-pizza fast food market share, with its menu now being far more diversified than it was a handful of years ago. This, when combined with changes to the ingredients used in recent years, has allowed the company to develop a significant amount of customer loyalty, with it also being a step ahead of most rivals when it comes to the use of social media, too.
Looking ahead, further menu changes could be on the horizon for Domino's as it seeks a greater market share of the wider fast-food industry. And, while the economic performance of the Asian economy may be under threat, demand for fast food is likely to remain resilient and, as a result, the planned expansion of Domino's into Asia is likely to provide considerable growth opportunities for the business over the medium term.
Similarly, CSL's exposure to the global economy means that its bottom line should gain a boost from the continued weakening of the Aussie dollar. This could be sustained over the medium term, since the RBA seems intent on providing an accommodative monetary policy so as to reduce the impact of disappointing commodity prices on the Aussie economy, which is positive news for the company's longer-term growth potential.
Clearly, neither CSL nor Domino's is dirt cheap. After all, there is something of a scarcity value attached to them due to their growth appeal. However, with price to earnings growth (PEG) ratios of 1.9 and 2 respectively, they appear to be well-worth buying at the present time.
