It's tough knowing how much to pay for shares in a company. Certainly, ratios give you a great guide but, ultimately, a great value stock can see its share price fluctuate up or down in the short run.
That's especially the case if the recent momentum has been downward, with it being tough to 'catch a falling knife'. However, it can equally be the case after shares in a company have risen strongly, with a pullback fairly common in such a scenario.
So, while the short-term movements of shares are undoubtedly difficult to predict, high-quality companies trading at great prices usually come good in the long run. Here are three fine examples of stocks that could be worth buying for the long term.
Insurance Australia Group Ltd
Despite the Brisbane storms wreaking havoc and costing huge amounts in damage, the share price of Insurance Australia Group Ltd (ASX: IAG) has remained relatively robust and is up 7% since the turn of the year.
Of course, a pullback cannot be ruled out in the short term but, looking at 2015 and beyond, IAG could be worth buying right now. That's because it appears to offer superb value for money both on a relative and absolute basis. For instance, IAG has a P/E ratio of just 11.9 which is very attractive, but appears to be even more so when you consider that the ASX has a P/E ratio of 14.9, while the insurance sector trades on an even higher rating of 18.1.
As a result of this potential for a further upward re-rating, as well as a fully franked dividend yield of 6.2%, IAG could prove to be a top performer next year.
Oil Search Limited
As mentioned, it's tough to catch a falling knife, and in the case of Oil Search Limited (ASX: OSH) its 16% fall in the last month definitely puts it in that bracket. As such, investors in the stock must be mindful that further falls could be on the cards, since the oil price is showing little sign of stabilising at its current price level.
However, looking beyond the short term, Oil Search could make for an excellent investment. For starters, it is forecast to ramp-up its bottom line considerably over the next couple of years as a result of increases in LNG production. This means that Oil Search trades on a PEG ratio of just 0.24, which seems to indicate it is a bargain at its current price and, as a result, could be worth buying right now.
And, if a low valuation isn't enough, Oil Search is expected to yield a not inconsiderable 2.8% next year, which is set to be well covered at 2.7 times by profit.
Brambles Limited
With shares in Brambles Limited (ASX: BXB) having risen by 8% in the last six months, it could be argued that they are due a pullback. While that may or may not turn out to be the case, the longer term appears to be very bright for Brambles.
For example, Brambles may offer excellent returns to shareholders at the present time and it is targeting an increase of around 25% in return on invested capital (ROIC). The company is seeking to grow ROIC from around 16% to nearer 20% over the next five years which, if met, could help to improve investor sentiment in the stock and push it higher.
In addition, Brambles continues to offer a solid yield of 3% (partially franked), and with shares in the company trading on a PEG ratio of 1.77, they seem to be relatively good value at a time when the ASX has a PEG ratio of 2.
