2014 has proven to be a positive year for investors in both Goodman Group (ASX: GMG) and Stockland Corporation Ltd (ASX: SGP), with both property companies easily outperforming the ASX. Indeed, while Goodman and Stockland are up 9% and 11% respectively year-to-date, the ASX has pulled back in recent days so that it’s now up just 2% over the same time period. However, moving forward, which is the better investment; Goodman or Stockland?
Growth at a reasonable price?
When it comes to growth prospects during the current year, both Goodman and Stockland are roughly in-line with the wider market. Indeed, Goodman is expected to increase its bottom-line by 5.7% in the year to June 2015, while Stockland is due to deliver slightly better performance at 8.3% over the same time period.
However, while Stockland is set to deliver better growth numbers this year, its current valuation is higher. For example, it trades on a P/E ratio of 16.9, which is ahead of the ASX P/E ratio of 16.1 and, more importantly, ahead of Goodman’s P/E ratio of 14.9. Despite this, Stockland’s stronger growth potential means that its price to earnings to growth (PEG) ratio is still lower than that of Goodman, with it being 2.04 for Stockland versus 2.61 for Goodman. As a result, although a higher valuation may at first glance appear to suggest an overvaluation, Stockland appears to offer growth at a more reasonable price than its sector peer, Goodman.
In addition, Stockland offers investors more income potential than Goodman. For instance, Stockland’s current (unfranked) yield is a whopping 6%. That’s considerably higher than Goodman’s (unfranked) 3.9%, and is also well ahead of the ASX’s 4.6%. Therefore, even though Stockland is not forecast to increase dividends per share over the next two years (while Goodman is expected to increase them by 6.9%), its income potential remains higher than that of its sector peer.
Clearly, both companies have their merits and could have bright futures. However, Stockland seems to offer more potential than its sector peer, Goodman. That’s because it offers more ‘bang for your buck’ in terms of earnings growth for the price you are paying, as well as greater income potential despite no increases in dividends per share being forecast over the next couple of years. Therefore, in this head-to-head battle, Stockland comes out on top of Goodman.
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 February 15th 2021
Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned
- I’d listen to Warren Buffett and invest in stocks with wide economic moats – March 31, 2021 11:30am
- I’d use these steps from the Warren Buffett/Charlie Munger method today – March 30, 2021 5:41pm
- Why I’d buy dirt-cheap shares now and aim to hold them for a decade – March 28, 2021 9:00am