While the ASX has not made the best of starts to 2015, being down 0.8% at the time of writing, a falling interest rate could improve market sentiment during the course of the year.
So, while beating the ASX may not sound like such a worthwhile achievement at the moment (since this can still equate to a fall in a company’s share price), it could turn out to be rather more appealing as the year progresses.
With this in mind, here are three stocks that could beat the ASX this year and, as such, could make a positive impact on your portfolio moving forward.
Clearly, a falling interest rate would be good news for the top and bottom lines of retailers such as Wesfarmers Ltd (ASX: WES). That’s simply because a lower cost of borrowing could encourage consumers to spend more, thereby leading to improved sales and profit numbers for Wesfarmers.
Certainly, there is increasing competition in the retail space in Australia, with the likes of Costco and Aldi having ambitious growth plans. However, Wesfarmers could benefit from increasing its exposure to the financial services sector, with the company having raised capital from the sale of its insurance business. M&A activity could be the catalyst to push profitability and sentiment upwards, with a price to sales ratio of 0.8 and a PEG ratio of 1.44 indicating that there is upside potential.
Scentre Group Ltd
A fall in interest rates would also be beneficial to shopping centre operator, Scentre Group Ltd (ASX: SCG), with it having the potential to raise consumer spending, as mentioned.
Even if rates do not fall, however, Scentre seems to be an attractive investment opportunity due to the fact that it continues to trade at a discount to the wider real estate sector when it comes to the price to book ratio. For example, while Scentre has a price to book ratio of just 1.02, the sector has a ratio of 1.14, thereby indicating that an upward change in Scentre’s valuation could lie ahead.
Of course, it could be argued that this has already begun to take place, with Scentre’s share price rising by an impressive 13% in the last year. This improvement in investor sentiment, coupled with a yield of 5.6% (and the potential for a boost to consumer spending) could mean that Scentre continues to outperform the ASX moving forward.
Commonwealth Bank of Australia
With shares in Commonwealth Bank of Australia (ASX: CBA) trading at an all-time high, it’s understandable that many investors may feel that their next move is either sideways or downwards. After all, no stock goes up in perpetuity.
However, CBA has considerable potential and could see its share price move higher. That’s especially the case if the RBA does cut interest rates further during the course of the year, which could stimulate demand for new loans and increase CBA’s bottom line at a faster pace than is currently forecast.
Still, an annualised rise in profitability of 5.9% that is forecast for the next two years is roughly in-line with the wider market. And, with a fully franked yield of 4.8%, CBA still seems to offer share price upside to go alongside an impressive yield.
Despite their strong potential, there is another ASX stock that I think could beat CBA, Wesfarmers and Scentre (as well as the ASX) this year.
In fact, the company in question has recently been named as The Motley Fool’s Top Stock For 2015 due to its bright future prospects, excellent growth potential and stunningly low valuation. As such, it could make a real difference to your portfolio returns this year.
Click here to find out all about it – it’s completely free and without obligation to do so.
Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.