With the ASX trading on a price to earnings (P/E) ratio that is not particularly low (it currently stands at 14.9), it’s perhaps unsurprising that many Aussie investors are finding it somewhat challenging to find good value stocks.
However, there are a number of high-quality stocks that appear to be worth buying and which could outperform the ASX during the course of the year.
Here are three examples that appear to offer excellent value for money and, while not without risk, could deliver strong returns moving forward.
Suncorp Group Ltd
Despite having a tough couple of years in which insurance claims increased due to a higher incidence of natural disasters, Suncorp Group Ltd (ASX: SUN) has posted strong earnings growth numbers over the last five years. In fact, the company’s bottom line has increased at an annualised rate of 12.9% during the period, which is highly impressive.
Looking ahead, profits are forecast to be 91% higher in financial year 2016 than they were in the 2014 financial year, which clearly bodes well for investors in Suncorp and makes its current valuation seem hugely appealing. That’s because, while Suncorp has a price to earnings (P/E) ratio of 17.6, its excellent forecast growth rate means that its price to earnings growth (PEG) ratio stands at just 0.46.
This could prove to be the catalyst that pushes its share price higher and, as such, Suncorp could be worth buying at the present time.
Although profitability at AMP Limited (ASX: AMP) has fallen considerably in recent years, with its bottom line declining at an annualised rate of 8.4% over the last ten years, the next two years could be much brighter.
That’s because AMP is forecast to increase its earnings by 31.5% per annum during the period, which is clearly a hugely impressive rate of growth.
So, while AMP does trade at a P/E ratio and price to book (P/B) ratio that exceed the wider market, being 15.7 and 1.98 respectively versus 14.9 and 1.24 for the ASX, its PEG ratio of just 0.5 indicates that value for money is on offer.
While its claims experience could worsen in 2015 and beyond, there appears to be a considerable margin of safety built into its current share price, thereby making it a stock that could beat the ASX this year.
Fortescue Metals Group Limited
With the iron ore price having spiked since the turn of the year, the outlook for Fortescue Metals Group Limited (ASX: FMG) may suddenly seem slightly brighter. With China rumoured to be contemplating a stimulus programme (which may include further interest rate cuts), the outlook for iron ore producers may not be as severe as is currently being priced in by the market.
For example, Fortescue currently trades on a P/E ratio of just 10.8, which is 27.5% below the wider market. As such, there could be the potential for an upward rerating, since the market seems to be pricing in a continuation of the scale of falls in the price of the commodity that were seen in 2014.
Certainly, there will be considerable volatility in Fortescue’s share price moving forward but, for longer term investors, it could prove to be a profitable buy at the moment.
Of course, finding the best stocks at the lowest prices is never an easy task. That’s especially the case if, like most private investors, you lack the time to search for them.
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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.
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