Three of the biggest businesses on the ASX, worth nearly $30 billion combined, have reached their highest point in the past 52 weeks. Consisting of one of Australia's largest energy businesses, its premier infrastructure stock, and one of its largest rail companies, they offer unique opportunities to get on board with some solid long-term opportunities.
But at such high prices, can investors really justify the rewards?
Sydney Airport Limited (ASX: SYD) – last traded at $5.55, up 25.8% for the year
(Readers wanting an update on Sydney's most recent traffic performance can find it here)
I and other contributors have written many times before about the potential of Sydney Airport and little brother Auckland International Airport Ltd (ASX: AIA) and the benefits they offer investors – defensive earnings, strong dividends, and reasonable single-digit earnings growth. It's a potent combination that's delivered market-beating performance for the better part of 10 years, if not longer. This also makes it difficult to evaluate whether the shares are a buy, because they rarely trade at anything resembling a 'discount'.
For shareholders with the 2030 milestone firmly in their sights, I believe Sydney Airport still offers decent value at today's prices, and I recently selected the company as one of my 'set and forget' long-term stocks for beginner investors.
Shorter term shareholders should be wary of the potential for a drastic slowdown in Chinese Gross Domestic Product (GDP) growth and/or a decision to devalue the currency, which could put a major clamp on tourism. China might boast a massive GDP and rapid growth, but if you divide that by its 1.3 billion inhabitants, much of the country still lives close to the poverty line.
On the other hand, a decision to allow the Yuan to appreciate would be a massive tailwind for tourism, but at the cost of a reduction in Chinese exports' competitiveness. With a slowing economy and fairly poor population, I believe the bear case for China is stronger at the moment, making Sydney Airport shares look like a hold.
AGL Energy Ltd (ASX: AGL) – last traded at $16.63, up 2.8% for the year
Shares rose 7% today after AGL released its 'strategic roadmap', a broad plan for improving Returns on Funds Employed and delivering sustainable earnings growth.
(Contributor Brendon Lau does a great job covering the strategic roadmap in his article here)
The plan comes at an interesting time for AGL, because not too long ago management completed the huge MacGen coal power acquisition, before subsequently announcing its intention to transition away from coal power entirely.
There is a large amount of uncertainty associated with this transition, but I like management's anticipatory thinking and awareness of regulatory and technology risks, and believe that today's value is a fair – if not appealing – price for Australia's leading electricity generator.
Asciano Ltd (ASX: AIO) – last traded at $6.86, up 20.6% for the year
Rail and logistics company Asciano has enjoyed a strong performance from its shares so far in 2015, rising 20% despite a modest forecast of 5% earnings growth.
The appeal is understandable thanks to Asciano's highly defensive earnings and wide moat (infrastructure assets that are expensive and not necessarily economical to compete with), but I'm not sure the company represents a great buy at today's prices. Like Sydney Airport I believe it is a fair to good long-term purchase with decent exposure to Australia's import/export business, which should deliver growth as the prosperity of the Asia-Pacific rises.
However unless you're specifically chasing blue chip, defensive stocks, I would avoid putting large sums of money into Asciano and Sydney Airport at today's prices.