With the ASX having fallen by 1% during the course of 2014, many Aussie investors are currently feeling pretty disappointed with the performance of their portfolios.
In addition, an interest rate of just 2.5% means that cash balances have done little to aid the overall picture. As a result, the performance of portfolios in 2015 could take on an even greater importance, as investors seek to make up for a 'lost' 2014.
Of course, there are no guarantees that the ASX will make gains next year and, with that in mind, here are three stocks that could beat the wider index over the next twelve months.
Santos Ltd
With shares in Santos Ltd (ASX: STO) falling by 29% in the last month, it's understandable that many investors are wary of trying to 'catch a falling knife'. After all, the price of oil is showing little sign of even stabilising, never mind starting to rise back up to the $110 level at which it was trading in June.
However, Santos has considerable long-term potential. For example, its LNG production is due to ramp up via stakes in the PNG LNG and GLNG projects over the next couple of years and, together, they are set to contribute to the company's bottom line growing at an annualised rate of 25.1% over the next two years.
With Santos currently trading on a PEG ratio of just 0.63, it seems to offer great value and, while the short term may be relatively volatile, the longer term could be hugely profitable for stockholders.
Insurance Australia Group Ltd
With a P/E ratio of just 11.9, Insurance Australia Group Ltd (ASX: IAG) seems to offer excellent value. That's especially the case when it's compared to the ASX which, despite a fall of 3.5% over the last month, still has a much higher P/E ratio of 15. As such, IAG could see an upward rerating to its valuation in 2015, which would clearly be positive news for investors in the company.
In addition, IAG could beat the ASX next year as a result of investors flocking to higher yield stocks. If interest rates do fall, this movement could be exacerbated and high yield stocks, such as IAG, could become even more in-demand and see their share prices rise as a result.
So, with a potent mix of income (via a 6.1% fully franked yield) and a relatively attractive valuation, IAG could outperform the ASX next year.
Westpac Banking Corp
Despite a flat performance in 2014, shares in Westpac Banking Corp (ASX: WBC) are still up 42% over the last five years. And, more importantly, there could be further gains to come in 2015, since the diversified banking play still trades on a lower P/E ratio than the ASX. While the wider market has a rating of 15, Westpac's is 11% lower at 13.3.
Certainly, the bank's earnings forecasts are rather pedestrian, with it being expected to raise its bottom line by just 3.4% per annum over the next two years. However, with dividends due to rise by 4.5% per year over the same time period, it means that shares in Westpac could be yielding as much as 6.1% in FY 2016.
Furthermore, with interest rates set to remain low, it could help to boost Westpac's loan book and improve its profitability outlook, as well as stimulate demand from income-seeking investors for its top notch yield.
