Assessing whether a company is worth adding to a portfolio can be a challenging process. That's at least partly because the future is a known unknown and also because there does not appear to be a catch-all means of investing. Therefore, assessing each company on a case-by-case basis can be the most prudent approach.
Take, for example, National Australia Bank Ltd. (ASX: NAB). On the one hand, it is facing a challenging period, with the dual effect of a slowing Aussie economy and more stringent regulatory requirements which may cause it to retain a greater amount of profit in future. On the other hand, it remains an appealing income play (especially with interest rates falling) and is also in far better shape following the sale of assets outside of Australia.
For long-term investors, NAB's near-term challenges present an opportunity to buy in at a discount to the wider index, with the bank trading on a price to earnings (P/E) ratio of 12.3 versus 15.2 for the ASX. And, with its earnings due to rise on a per share basis from $2.10 to $2.61 in the next two years (an increase of 24%), its shares could continue the performance that has seen them rise by 77% since their 2009 low.
Similarly, Coca-Cola Amatil (ASX: CCL) could be viewed as a company which has done little more than offer sub-standard performance in recent years. In fact, its earnings have risen by just 1.5% per annum in the last decade and its shares are just 11% higher after that period. However, under a new strategy Coca-Cola Amatil is expected to resume much higher levels of bottom line growth, with next year set to see it rise by around 6.3%.
Looking further ahead, Coca-Cola Amatil has the potential to post higher earnings growth as a result of its continued expansion into faster-growing markets in Asia. This, of course, requires significant upfront investment but with a $500m war chest, it appears to have the financial firepower to do so. And, with a yield of 4.8% and a beta of 0.54, Coca-Cola Amatil remains a top notch income and defensive play in the meantime.
Also expanding into Asia is Domino's Pizza Enterprises Ltd. (ASX: DMP), with it due to double its store numbers in Asia over the medium term. This, though, is not an indication that Domino's is only growing through an increase in store numbers, since its menu is evolving at a faster rate than many of its competitors and it is increasing its share of the fast food market as a consequence.
Clearly, the company has a wide economic moat, with customer loyalty being high due to the relative consistency of its product, fast delivery times and features such as a GPS driver tracker and more social media involvement than for rival fast food brands. And, while its shares have a P/E ratio of 51, their rapid and reliable growth rate looks set to continue, as does their share price growth of 57% since the turn of the year.
