With the Aussie economy enduring a challenging period, it may feel as though there is no growth on offer among the ASX's many constituents. However, while there is certainly less choice than a year ago, there are still a number of highly profitable Aussie businesses that are set to deliver very upbeat growth numbers in the medium term. And, best of all, many of them are now trading on even more appealing valuations.
For example, gold mining business Newcrest Mining Limited (ASX: NCM) has endured a difficult year, with the gold price falling to a five-year low. This is somewhat surprising given the view of many market participants that gold is a store of value which is worth buying during uncertain economic times. Despite this, gold has fallen in price and, as such, Newcrest's bottom line is set to do the same by 10.5% in the current year.
However, having made a number of fundamental changes to its business – most of which have been focused on reducing costs and becoming more efficient, Newcrest is now a lean and relatively appealing company. And, looking ahead to next year, it is forecast to mount a turnaround, with its bottom line due to rise by as much as 27%. This puts it on a price to earnings growth (PEG) ratio of 0.8, which indicates upside potential while the ASX has a PEG ratio of 1.4.
Similarly, Suncorp Group Ltd's (ASX: SUN) 15% fall in its share price during the last year has reduced its price to earnings (P/E) ratio to just 13.2 versus 14.8 for the ASX. This appears to be unjustifiably low, since Suncorp is making excellent progress as a business and is expected to deliver a rise in net profit of 16% in the current year, followed by an increase of just under 5% next year. This puts the company on a PEG ratio of just 1.3.
Furthermore, during a highly volatile period for the ASX, Suncorp offers relative stability via a beta of 0.9. This means that its shares should move by 0.9% for every 1% change in the value of the wider index, thereby providing a more stable shareholder experience over the short to medium term.
However, neither Suncorp nor Newcrest Mining offer the level of growth which medical device company Sirtex Medical Limited (ASX: SRX) is expected to post in the next two financial years. That's because it is expected to continue the run which has seen net profit rise at an annualised rate of 41% during the last ten years by delivering a rise in earnings of 40% per annum during the next two years.
Clearly, a P/E ratio of 42 may put off a lot of investors – especially while the ratings of a number of Sirtex's index peers have fallen substantially in recent months. However, when its growth rate is taken into account, Sirtex trades on a PEG ratio of just 1 and this indicates that it looks set to continue to beat the wider index, as it has done in the last year with capital gains of 48% versus a decline of 7% for the ASX.
