While it's a great idea to focus on income stocks at a time when Aussie interest rates are set to stay at or below 2.5% for a good while, share price appreciation tends to come from companies that can grow earnings at a fast pace.
Combine the potential to grow at a fast pace with a valuation that has room to increase and you could be on to a winner.
With this in mind, here are three stocks that offer above average growth rates and trade at a price that could be set to increase over the medium term.
- Newcrest Mining Limited
Having risen by 32% in 2014, investors could be forgiven for thinking that Newcrest Mining Limited (ASX: NCM) is due a fall. However, the gold miner could continue its strong run as a result of its bottom line being expected to be 19.2% higher in FY 2016 than it was in FY 2014.
Certainly, shares are priced on a rather rich P/E ratio of 20, but with Newcrest having such a vast amount of reserves, a very low cost curve and diversified operations, it seems worth a premium over the wider market. As a result, it could continue to outperform the ASX moving forward.
- Santos Ltd
It's an exciting time for investors in Santos Ltd (ASX: STO), with the oil and gas producer expecting to see a step-up in earnings as further LNG shipments are set to come on stream. This step-up is expected to be quite a big one, with earnings forecast to grow by 39.2% per annum over the next two years.
Despite this, Santos continues to trade on a relatively attractive price to earnings growth (PEG) ratio of 0.55, which is well below the ASX's PEG ratio of 1.72. As a result of this potent mix of growth and value, shares in the company could outperform the ASX in future years.
- Oil Search Limited
With the PNG LNG project expected to come online, Oil Search Limited's (ASX: OSH) earnings numbers are due to increase at a rapid rate. For example, EPS is set to increase at an annualised rate of 88.4% over the next two years, which is clearly an impressive growth rate.
However, shares in the company still offer good value for money. They trade on a P/E ratio of 25.7, which when combined with the whopping growth rate equates to a PEG ratio of just 0.29. Accordingly, Oil Search could smash the ASX moving forward.
