While the performance of a number of stocks that depend upon consumer spending levels has lagged the ASX since the turn of the year, now could be a perfect time to buy them. Certainly, relatively high levels of unemployment and commodity price pressures have led to a squeeze on household budgets and things could get worse in this regard before they get better. However, with the RBA adopting an increasingly loose monetary policy, the medium term outlook for consumer-focused stocks remains sound.
In fact, the perfect time to buy any stock is when market sentiment is somewhat weak, but the long term outlook remains relatively strong. That's just the situation right now for these three top quality ASX stocks: Wesfarmers Ltd (ASX: WES), Scentre Group Ltd (ASX: SCG) and Crown Resorts Ltd (ASX: CWN). Here's why.
Wesfarmers
A major fear for many investors in Wesfarmers is the impact of no-frills competitors such as Aldi and Costco. Certainly, they are making an impact at the moment, but Wesfarmers continues to have enviable locations, a very efficient supply chain, and the financial firepower to further diversify its business in the face of competition.
Furthermore, it trades on a dividend yield of 4.5% (fully franked) and has a beta of just 0.64, which should make it a relatively stable stock to own. This, coupled with its conglomerate structure, should allow Wesfarmers to post strong growth numbers with, for example, its bottom line forecast to rise at an annualised rate of 9.8% during the next two years. And, with a price to sales (P/S) ratio of just 0.83, it offers excellent value for money, too.
Scentre
Having raised $778m in a bond issue recently, shopping centre operator, Scentre, is in an even stronger financial position from which to deliver upbeat earnings growth of 5.3% next year. That's because it now has less reliance on bank loans through which to make further investments in its business, and this should lead to higher margins and more flexibility moving forward.
And, with its shares currently yielding 5.5% and forecast to grow dividends per share by 3.4% next year, investor sentiment in Scentre could pick up significantly over the medium term. That's especially the case since Scentre trades on a price to book (P/B) ratio of 1.22, which is less than the ASX's P/B of 1.3.
Crown Resorts
While Crown Resorts' planned hotel and casino in Sydney is dominating headlines, the company is quietly forecast to increase its bottom line by 21.8% next year. With a P/E ratio of 16.5 this puts it on a price to earnings growth (PEG) ratio of just 0.8, which is far less than the ASX's PEG ratio of 2.4 and also lower than the wider consumer services sector PEG of 1.3.
Clearly, a lower interest rate benefits Crown Resorts, with its international exposure being aided by a weaker Aussie dollar and consumer spending being given a boost domestically. And, even though multiple potential projects being in development does place a strain on the company's finances, cash flow per share has improved significantly in recent years (it has increased at an annualised rate of 12.6% during the last five years), which makes Crown Resorts' risk/reward ratio very favourable.
