Rewind one year and two stocks you should have purchased are AMP Limited (ASX: AMP) and Domino's Pizza Enterprises Ltd. (ASX: DMP). That's because their share prices have soared by 19% and 106% respectively, while the ASX has fallen by 1%.
However, that's history and, if you agree with Henry Ford, then it is all bunk. Looking ahead, can AMP and Domino's replicate their performance over the last year, or should you now avoid them and invest elsewhere?
On the face of it, both stocks have huge potential to post stunning share price gains over the next year. That's at least partly because of their excellent forecast growth rates which, at a time when many Aussie investors are feeling nervous about the future prospects for the economy, could stimulate investor sentiment.
For example, wealth manager AMP's earnings per share are forecast to rise from $0.29 in financial year 2014 to as much as $0.41 in financial year 2016. If met, that would represent a gain of 41% in just two years and, when combined with a price to earnings (P/E) ratio of 18, equates to a price to earnings growth (PEG) ratio of just 0.95. This compares favourably to the ASX's PEG ratio of 1.41 and, as such, capital gains are on the cards.
Similarly, Domino's Pizza may have posted an annualised increase in its bottom line of over 15% during the last 10 years, but it is expected to step-up its growth numbers moving forward. In fact, its bottom line is set to rise by over 21% per annum during the next two years. And, while Domino's may not be as attractively priced as AMP, with it having a P/E ratio of 56 and a PEG ratio of 2.6, its reliability and consistency could have huge appeal if, as expected, the ASX's uncertainty and volatility increase.
Meanwhile, the RBA's decision to adopt a looser monetary policy may prove to be a major advantage for AMP. That's because, with a beta of 1.63, its shares stand to benefit from a rising ASX more than most and, in fact, are expected to rise by 1.63% for every 1% gain in the ASX moving forward. Furthermore, a falling interest rate could also benefit Domino's, since it could improve consumer confidence and cause consumers to spend more and worry less about saving. In other words, it may prevent people from trading down from their regular Domino's takeaway pizza to a no-frills supermarket brand.
Although Domino's may not be able to replicate the more than doubling of its share price that has taken place in the last year, it remains a top quality business that has a winning formula. And, with expansion outside of Australia likely to be a main focus for the business, Aussie investors seeking exposure outside of the domestic economy could become more interested and push its share price higher. And, with AMP expected to increase dividends per share by over 50% per annum during the next two years, its forward yield of 5.1% could hold great appeal for investors, too. As such, and while they have had a stunning year, it does not appear to be too late to buy either stock.
