Timing your purchases and sales in the stock market is never an easy task.
Indeed, often the best times to buy are when the outlook is most uncertain, with the best times to sell being when investors are not fully pricing in future risks.
Therefore, at the present time it could be prudent to focus on companies that have bright futures, but which also have a relatively large margin of safety built into their current share prices, given the uncertainty facing the ASX right now.
With that in mind, here are three prime examples of companies that could prove to be strong performers over the medium term, and which could be worth buying at the moment due to their attractive valuations.
With its recent AGM providing mixed news regarding the performance of its brands, Wesfarmers Ltd (ASX: WES) may not seem like a strong buy at the moment. After all, the company’s Target division is struggling to deliver profit growth, while it is apparently seeking to expand its banking services after divesting its insurance division.
However, Wesfarmers still has huge growth potential, as evidenced by its earnings growth forecasts for the next two years. Indeed, the company’s bottom line is expected to grow at an annualised rate of 13.9% over the period and, with a P/E ratio of 20.2, Wesfarmers’ PEG ratio of 1.45 still seems to offer upside potential. Furthermore, investor sentiment seems to be strong after positive first quarter results.
In addition, a fully franked yield of 4.8% means that Wesfarmers still offers a generous income return, as well as the potential for capital gains, too.
Rio Tinto Limited
While the price of iron ore has fallen heavily during the course of 2014, Rio Tinto Limited (ASX: RIO) still has strong growth potential. Indeed, as the recent decision by China to reduce interest rates has shown, sentiment in mining stocks can quickly turn positive and, with the company being expected to increase its bottom line by 9.2% next year, momentum could build in Rio Tinto over the near term.
In addition, Rio Tinto’s share price also offers a wide margin of safety, with the company having a P/E ratio of just 10.8. Furthermore, when next year’s growth forecasts are taken into account, it equates to a PEG ratio of just 1.17, which indicates that growth is on offer at a reasonable price.
Australia and New Zealand Banking Group
Clearly, the last few years have seen major changes occur at financial institutions across the globe, with the GFC having a huge impact upon the sector. Indeed, changes are still being rapidly made at Australia and New Zealand Banking Group (ASX: ANZ), with the bank’s super regional strategy shifting its focus away from Australia and toward markets that it feels will help to diversify its geographic spread and also provide better long-term growth prospects.
For example, the bank is aiming to derive between 25% and 30% of revenue from Asia, Europe and the Americas and ANZ’s bottom line is still performing remarkably well. For instance, it delivered cash profit of $7.1 billion in its most recent year, which is hugely impressive and allowed it to increase dividends by around 14%. With shares in the bank currently trading on a P/E ratio of just 12.1, they seem to offer good value as well as the potential for excellent growth over the medium to long term. As such, they could be worth buying right now.
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*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.
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