In a stock market so heavily dominated by the banks and miners, it's pretty difficult to avoid companies like BHP Billiton Limited (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA). In fact, given that the two account for more than 17% of the entire S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), the vast majority of Australian portfolios contain at least one of the two.
With a market cap of $6.6 billion, Medibank Private Ltd (ASX: MPL) is a much smaller company yet it too demands plenty of investor attention. The health insurer was floated by the Australian government in November in what was one of the most highly anticipated IPOs of the decade. If you don't own the stock, there's a very good chance you at least considered buying a parcel of shares late last year.
With 2014 now behind us however, we've turned our attention to the year ahead. As such, it's worth considering how BHP Billiton, Commonwealth Bank and Medibank Private could fare over the next 12 months.
BHP Billiton Limited
BHP Billiton finds itself in a very uncomfortable position. Not only are its four key commodities (iron ore, coal, copper and petroleum) sitting at multi-year low prices, the miner has also lost the confidence of investors who had been hoping for additional capital management through 2014. All things combined, BHP's shares have copped a hammering since mid-August in which time they've lost nearly 27% of their value.
To many investors, BHP will now be an appealing prospect. At $29.16, the stock is tipped to yield around 5.1% in the 2015 financial year (fully franked), while it's also sitting within a few percentage points of a six-year low.
However, investors need to be aware of the risks still facing the business, and the industry as a whole. Iron ore and petroleum – BHP's two biggest revenue generators – are tipped to continue declining in price over the year which could certainly drag BHP's shares even lower. While BHP is definitely a watchlist-worthy stock, investors ought to hold off from buying just yet.
Commonwealth Bank of Australia
Through capital gains and dividends, Commonwealth Bank has generated enormous returns for investors in recent years. Not only has it been seen as a safe-haven through economic uncertainty and low interest rates, its profits have also been surging higher as a result of loan growth and record low bad debt charges.
Right now however, the shares are 'priced for perfection' at over $86 and while they still offer a decent yield, it's the wrong time in the economic cycle to buy. Commonwealth Bank could continue to climb in price in the near-term, but long-term investors looking for market-beating returns are likely to be disappointed.
Medibank Private Ltd
It was the most hotly anticipated float since that of Telstra Corporation Ltd (ASX: TLS), receiving interest from more than 750,000 Australians. The health insurer has certainly hit the boards with a bang having surged 20% for retail investors since that historic day on November 25.
Indeed, Medibank is a good company which could deliver strong gains in the long run, but right now there is an enormous level of hype priced into the stock. Despite concerns over its ability to reduce costs and improve productivity, the stock is still trading on a price-earnings ratio of 25.6x financial year 2014 earnings, which is well above the market's average.
Although some analysts have forecast the stock to climb as high as $3.00 this year, there is little margin of safety for investors who buy today.
