With the ASX set to break through the 6,000 barrier for the first time since the start of the global financial crisis, many Aussie investors may be starting to think about selling rather than buying. After all, a stock market at a seven-year high does not exactly scream 'value for money'.
However, the outlook for a number of companies on the ASX is bright and, even though their valuations may at first appear to be somewhat high, they still offer superb potential for capital gains over the long run. So, with that in mind, here are three stocks that I would class as 'bargains' at the present time.
QBE Insurance Group Ltd
Recent comments by QBE Insurance Group Ltd's (ASX: QBE) Chief Executive, John Neal, should help to improve investor sentiment in the company moving forward. That's because he stated that the company's balance sheet is now in 'very good health' and, when combined with the fact that QBE's debt to equity ratio has been cut from 44% in 2013 to 32% in 2014, it bodes well for its growth potential.
Despite this, QBE trades on a price to book (P/B) ratio of just 1.39, which is far less than the 2.15 of the wider insurance sector. And, with the prospect of an increased payout ratio over the long term, QBE's forward dividend yield of 4.2% could move much higher in 2017 and beyond.
Macquarie Group Ltd
The present strategy being employed by Macquarie Group Ltd (ASX: MQG) appears to be sound and places the company on a strong long term growth footing. In fact, the shift to non-cyclical businesses and towards a focus on regions in which Macquarie is performing relatively well, such as North America and Australia, is a major reason why investor sentiment has improved in the last year to push the company's share price upwards by 36%.
And, with Macquarie expected to post earnings growth of 16.7% per annum during the next two years, its price to earnings (P/E) ratio of 17.7 looks appealing, since it equates to a price to earnings growth (PEG) ratio of only 1.06.
Cochlear Limited
On the face of it, Cochlear Limited's (ASX: COH) P/E ratio of 35.7 may cause many investors to think that it should not be described as a 'bargain basement' stock. After all, the ASX has a P/E ratio of 16.7, while even the health care equipment and services sector has a lower P/E ratio than Cochlear of 22. However, Cochlear is forecast to increase its bottom line at an annualised rate of 38.9% during the next two years, and this puts it on a PEG ratio of just 0.92.
Furthermore, with Cochlear having a beta of just 0.5, it offers greater stability than the wider index and this could prove useful if the RBA's interest rate cuts are not enough to stimulate the Aussie economy over the medium term.
