With 2014 having been a relatively disappointing year for the ASX, it's understandable that many investors are feeling somewhat pessimistic regarding the year ahead. After all, 2014 began with such enthusiasm and yet produced a gain of just 1% for the ASX.
However, there are reasons for Aussie investors to be optimistic. For example, there are a number of top quality stocks that now trade on even more appealing valuations. And, looking ahead, they could make a real impact on your investments throughout the course of 2015.
Here are three examples of stocks that could boost your returns this year.
Santos Ltd
While the falling oil price has hit the share price and forecasts for Santos Ltd (ASX: STO), it could still deliver impressive returns this year. That's because the market appears to be pricing in a considerable margin of safety, with Santos' share price falling by 44% during the course of the last year and now trading on a price to book ratio of just 0.79.
Further evidence of its cheap share price can be seen in the fact that Santos yields 4.3% and, while its P/E ratio remains slightly higher than that of the ASX (15.7 versus 15.2 for the wider index), its annualised growth forecasts of 8% over the next two years still appear to be relatively impressive.
So, while further oil price falls and a credit downgrade could be on the cards in the short term, Santos could still provide above average returns moving forward.
Macquarie Group Ltd
Unlike Santos, Macquarie Group Ltd (ASX: MQG) has had a rather successful recent period. Evidence of this can be seen in the company's share price which is up by 6% in the last year and, when its dividend yield of 4.8% is added to the mix, this means that Macquarie has posted a total return of over 10% during the period.
Looking ahead, Macquarie is forecast to increase its bottom line at an annualised rate of 10% over the next two years and, although it remains a relatively cyclical stock, its considerable exposure to fast-growing economies (notably in Asia) could help it to outperform a relatively sluggish Aussie economy in 2015.
And, with Macquarie trading on a P/E ratio of 14.4, it still seems to offer good value compared to the ASX (which has a P/E ratio of 15.2) and, as such, could beat the index again this year.
Westpac Banking Corp
While an interest rate of 2.5% is low by historical standards, it is clear that the RBA seems willing to lower it further in 2015. Certainly, higher unemployment and continued commodity price uncertainty is not good for most stocks, banks included, but the stunning income potential of Westpac Banking Corp (ASX: WBC) combined with a lower interest rate could spark investor interest in the stock.
For example, Westpac currently yields a fat, fully franked yield of 5.6% and, looking ahead, is forecast to deliver dividend per share growth of 4.5% per annum over the next two years. This rate of growth is almost twice the current level of inflation and means that Westpac is likely to offer a real terms increase in dividends over the short to medium term.
This, combined with the potential for a surge in demand for new loans if interest rates do fall, could improve investor sentiment in Westpac and lead to share price gains. And, with a P/E ratio of 13.4, there appears to be scope for an upward adjustment to the bank's rating, since the ASX and the wider banking sector have P/E ratios of 15.2 and 14 respectively.
