With the ASX having fallen by 9% in the last year, most investors are feeling bearish rather than bullish at the present time. That is completely understandable, given that the outlook for Australia, both economically and politically, seems to be somewhat uncertain. And, with commodity prices being low, house prices being high and unemployment still above the desired level, it feels as though the present challenges facing the Aussie economy will take time to work through.
This, though, is more of a buying signal than a selling signal for long-term investors. Such investors are not overly concerned with the short-term outlook for the economy and instead focus on whether things will improve over the next handful of years rather than the next few months.
As such, now presents an opportune moment to focus on company fundamentals, pick out the stocks with a competitive advantage and become greedy (with regards to buying) when other investors are fearful.
One stock that has huge long term potential is CSL Limited (ASX: CSL). That's partly because its share price growth has been somewhat lacklustre this year compared to previous years. For example, it is up just 2% since the turn of the year, yet in the previous five years it posted capital gains of 178% in total.
Of course, a reason for this was a profit warning in February for the full year which sent its shares tumbling. However, the pharmaceutical company still managed to record a rise in earnings of 33% last financial year and, over the next two years, is forecast to post annualised growth of over 15%.
And, while downgrades to such expectations cannot be ruled out, the likelihood is that, over the long run, CSL will post considerably above-average earnings growth figures because its performance as a business is relatively independent of the economic cycle. As such, a price to earnings (P/E) ratio of 22.7 indicates good value for money given CSL's reliability and growth potential.
Macquarie Group Ltd (LSE: MQG), of course, has soared in 2015, with the wealth manager and banking company posting a rise of 32% in its share price since the turn of the year. Encouragingly for the company's investors is the fact that, unlike a number of its larger banking peers, Macquarie has stated that it will not need to raise additional capital to satisfy the regulator's updated demands.
This, therefore, means that Macquarie may be able to engage in M&A activity while asset prices are somewhat depressed. This could bolster the company's earnings growth rate which, over the next two years, is set to rise at an annualised rate of over 9%. And, even though Macquarie's share price has risen by almost a third in 2015, it still trades at a discount to its sector (diversified financials), having a price to earnings growth (PEG) ratio of 1.59 versus 1.67.
Also having excellent growth potential is tunnel and toll-road operator, Transurban Group (ASX: TCL). One of the most appealing things about Transurban is, of course, its uniqueness, since it has a strong base of lucrative assets which, in the long run, are likely to generate increasing returns as Australian cities become more congested.
Certainly, in the short run there is a danger of people using cars less due to disposable incomes being squeezed. However, this should be offset somewhat by a lower oil price and, because of this, Transurban's near-term forecasts are upbeat, with the company being expected to increase its bottom line at a rapid rate so as to produce a hugely appealing price to earnings growth (PEG) ratio of just 0.8.
