Part of being a long term investor is accepting that share prices will not always move in your favour. After all, even the best performing stocks have periods of disappointing performance.
However, when disappointment does come, it’s all too easy to doubt the long term prospects of a business and think about switching your capital into another company. This, though, can result in high dealing costs and a tendency to ‘buy high’ and ‘sell low’, thereby reducing profitability in the long run.
With this in mind, here are three stocks that have got off to difficult starts this year, but which could come good as the year progresses.
Shares in Woolworths Limited (ASX: WOW) have got off to a rather subdued performance since the new year, with them currently being down 1% year-to-date. Although this is in-line with the performance of the wider index, there remain concerns regarding the long term profitability of the Aussie supermarket and retail sector, with no-frills discount stores having the potential to do here what they have done in the UK. This means the of squeezing the established players at a time when consumers are arguably becoming more price conscious.
However, Woolworths still appears to have a bright future as an investment. For example, it continues to trade at a very attractive price, with it having a price to sales (P/S) ratio of just 0.63. This is low on an absolute basis, but seems to be even better value when compared to the wider retail sector’s P/S ratio of 0.95.
Furthermore, with it having a diverse range of operations and enviable locations, it could come through the present economic challenges much better than is currently being priced in. As such, it could be a strong performer this year.
Westpac Banking Corp
Shares in Westpac Banking Corp (ASX: WBC) have also kicked-off 2015 in a rather disappointing fashion and are currently down 2% since the turn of the year. Of course, that comes after a five-year period when they have posted capital gains of more than three times the ASX (27% versus 8%) and so a short period of weakness is perhaps to be expected.
Looking ahead, Westpac offers considerable potential as an income play. For example, it is forecast to increase dividends per share at an annualised rate of 4.5% over the next two years and, with shares in the bank already yielding a fully franked 5.7%, this means that they could be yielding as much as 6.1% in financial year 2016.
And, with dividends set to become even more in vogue as banks cut savings rates, Westpac could see demand for its shares increase during the remainder of 2015.
Oil Search Limited
Shares in Oil Search Limited (ASX: OSH) moved 5% higher yesterday as positive news flow was released regarding the Papua New Guinea liquefied natural gas (LNG) project. Indeed, Oil Search and ExxonMobil have moved closer on expanding the project through the agreement of a construction timeline with the local government. The deal will see a decision being taken on the building of a third LNG processing train no later than the end of 2017, which is clearly positive news for both companies.
This means that shares in Oil Search are now down 5% since the turn of the year and, looking ahead, they could continue to come back during the course of the year. In fact, Oil Search appears to offer excellent value for money at the present time, with it having a price to earnings growth (PEG) ratio of just 0.29 and offering growth potential at a very reasonable price. This could improve investor sentiment in the company and push its shares higher in the months ahead.
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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.
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