During 2014, volatility is something that Aussie investors have become all too aware of. Indeed, the ASX has moved between being in the red and being in the black several times during the year, but has only managed to make capital gains of 3% year-to-date.
Certainly, a large number of stocks follow the wider index and their share price movements generally track the index. However, low beta stocks can provide a less volatile experience for investors, but still offer strong long-term gains, too.
With that in mind, here are three low beta stocks that have very bright future prospects. As such, they could deliver superb gains even if the ASX continues to be indecisive regarding its shorter-term price movements.
Westpac Banking Corp
With a beta of 0.84, shares in Westpac Banking Corp (ASX: WBC) should move by 0.84% for every 1% move in the wider index. During the course of 2014, they have outperformed the wider index by 3.5% and could continue to do so during the remainder of the year and into 2015.
That’s because Westpac continues to deliver strong profit growth, with the bank’s bottom line growing by 8% year-on-year. Furthermore, with a cost:income ratio of just 42% and return on equity of just over 16%, Westpac seems to be doing an excellent job of keeping costs down and ensuring returns to equityholders are impressive.
In addition, Westpac currently offers a fully franked yield of 5.4%, which is well covered by earnings at 1.35 times. This excellent yield, plus strong results and a low beta, could mean that Westpac continues to offer capital gains, whether the ASX is volatile or not.
Despite many of its US peers struggling to deliver any meaningful top and bottom line growth, CSL Limited (ASX: CSL) is due to report supremely strong earnings growth over the next couple of years. The pharmaceutical company’s bottom line is forecast to rise at an annualised rate of 15.8% over the period and, with a PEG ratio of just 1.62, shares in the company appear to offer appealing value for money at the present time.
In addition, CSL could perform well irrespective of the future direction of the ASX, since it has a beta of just 0.6. This has undoubtedly aided it during the course of 2014, with shares in CSL being up 15% year-to-date.
With the company having considerable long term potential, partly resulting from its recent acquisition of the influenza vaccine business of Novartis, CSL could prove to be a winning investment in 2015 and beyond.
Telstra Corporation Ltd
With a beta of just 0.5, Telstra Corporation Ltd (ASX: TLS) is a highly appealing defensive stock. Certainly, shares in Australia’s dominant mobile operator have performed well in 2014, being up 7% year-to-date, and at least some of this outperformance is likely to be a result of investors seeking more stable companies during a volatile year for the wider index.
However, Telstra has much more to offer than just defensive qualities and high levels of recurring revenue. That’s because it has vast growth potential, with Asia being a region targeted by Telstra’s management for growth over the next five years. In fact, Telstra is aiming to derive a third of its revenue from the region by 2020, which will undoubtedly help to grow its top and bottom lines.
With shares offering strong income potential via a fully franked yield of 5.3%, impressive defensive qualities and exciting long-term growth prospects, Telstra could continue to outperform the ASX and benefit from further market volatility through being seen as a safer investment than many of its peers.
Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.
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