Wesfarmers Ltd (ASX: WES) and Woodside Petroleum Limited (ASX: WPL) could be about to make some big changes through acquisitions. Investors will definitely want to know how their growth outlooks could be changed.
Both stocks are blue-chips that I think are attractively priced for what they may have to offer, based on their price-earnings to growth, or PEG, ratios.
This measurement helps investors compare the expected growth of the stock to its price mulitiple. When the ratio is close to or lower than 1, the stock could be a bargain not to be ignored. Values over 2 indicate a stock may be overpriced.
Here’s why I think investors should look these two stocks over now.
— Wesfarmers , the retail conglomerate, is near new 52-week highs, but its share price may still be considered relatively cheap compared to what it may be in the near future. The company plans to enter the financial services sector and is said to be looking over financial service providers like AMP Limited (ASX: AMP) and possibly even Suncorp Group Ltd (ASX: SUN) for a quicker, easier way than starting its own new business.
The stock is priced at 21.8 times earnings, which is near the top of past PE averages. Its PEG ratio stands at 1.36 – not a complete steal, but looking reasonably priced. It pays a big 5.0% yield. I believe this may be an opportunity to have even a small position in Wesfarmers as it prepares for its next phase of growth.
— Energy producer Woodside Petroleum Limited is also at a particular juncture where it could expand its business through acquisition as well. It’s making quite a bit of money from its producing North West Shelf and Pluto LNG projects, but needs more developments in the pipeline that could produce soon.
Enter Apache Corporation (NYSE: APA). The US-based energy company wants to sell off its foreign assets and concentrate on the burgeoning US shale oil industry. It has a stake in the Wheatstone LNG project along with Chevron Corporation (NYSE: CVX). The stakes could be put up for sale soon and Woodside Petroleum seems to be the front runner to buy them.
Woodside’s stock rebounded a little after the recent market sell-off, yet still has a low 0.83 PEG ratio. This opportunity may take some time to work its way to the bottom line since Wheatstone hasn’t started yet. This business would be more for the long-term investor who can wait while they enjoy the huge 5.8% fully franked yield.
Although both stocks offer attractive opportunities in the long term, growth investors will also want to know about another company that could trump their investment potential.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.