This week saw the ASX reach its highest point since June 2008. A momentous occasion, I’m sure you’ll agree, but one that many investors are thinking could mean the top of the market, with a correction being just around the corner.
However, even though the ASX is now at a six-year high, there is still good value to be had among a number of large-cap stocks. Here are three that trade on lower P/Es than the ASX and could be long term winners.
It’s been a rather disappointing year for investors in Orica Ltd (ASX: ORI), with shares in the chemicals company down 8% year-to-date, while the ASX is up 3% over the same time period. However, this period of underperformance means that Orica now trades at a significant discount to the wider market. Indeed, its P/E of 13.4 (trailing 12 months) is over 18% lower than that of the ASX, which has a P/E of 16.3. With earnings forecast to grow by 7.9% next year, Orica could offer growth at a very reasonable price.
- Insurance Australia
Meanwhile, even better value appears to be on offer at Insurance Australia Group Limited (ASX: IAG), with the insurance company trading at a huge 30% discount to the ASX. However, it doesn’t just come with a relatively low P/E of 11.5 (trailing 12 months), IAG also offers a top-notch (and fully franked) yield of 5.9%. This easily beats the yield on the ASX (4.5%) and, furthermore, dividends are well-covered at 1.3 times. This shows that there is a strong yield opportunity as well as an enticing value play on offer at IAG.
- Leighton Holdings
More great value and income appeal is on offer at Leighton Holdings Limited (ASX: LEI), with shares in the international contractor yielding 5.1% (50% franked) and trading on a trailing 12 month P/E of just 13. That’s despite shares in Leighton posting strong gains in 2014, with an increase of 31% already having been made. Although growth prospects over the next year are rather pedestrian (EPS is forecast to increase by just 1.8% next year), the potential for a significant upwards P/E rerating plus a super yield could mean shares in Leighton continue to outperform the ASX over the medium to long term.
One more top yielding pick
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.
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