Since the end of April, the ASX has fallen by almost 9%. This now means that a number of its constituents offer better value for money than they did six months ago, thereby turning the risk/reward ratio further in the investor's favour.
For example, packaging company Amcor Limited (ASX: AMC) is flat over the last six months despite the company having excellent long-term growth prospects. These are centred on the scope to expand into fast-growing markets outside of Australia, with Amcor pursuing a prudent acquisition model so as to broaden its global footprint and also tap into far superior long-term growth prospects compared to the domestic economy.
Indeed, Amcor's purchase of the Souza Cruz tobacco packaging company in South America is another example of its sound strategy which is forecast to increase the company's bottom line by 6% in the next financial year. Furthermore, Amcor is an integral part of the supply chain for a number of companies and, with efficiencies being sought more than ever in an increasingly uncertain global economy, it has the potential to add value for its customers and boost its own sales and profitability. With Amcor having a price to sales (P/S) ratio of 1.3 versus 1.4 for the ASX, it seems to offer upside potential.
Similarly, Macquarie Group Ltd (ASX: MQG) is also taking advantage of its sound financial standing by making acquisitions, with the purchase of ANZ's dealer finance unit taking Macquarie's exposure to that space to around $17bn. This, alongside the aircraft leasing operation bought earlier in the year, not only diversifies the company's revenue streams, but also provides more annuity-style revenues which could provide additional stability over the medium to long term.
Looking ahead, the acquisitions are set to contribute to earnings growth of over 10% per annum during the next two years. Combined with a price to earnings (P/E) ratio of 15.1 (versus 15.6 for the ASX), this equates to a price to earnings growth (PEG) ratio of only 1.4. This indicates that Macquarie's growth outlook is not only highly diversified and relatively stable, but also comes at a very appealing price for investors.
Meanwhile, JB Hi-Fi Limited (ASX: JBH) is also making changes to its business model, notably refreshing a number of its stores to take into account changing consumer tastes. On this front, it is also targeting increased online sales, which currently represent only 2.4% of total sales and are therefore likely to be a major growth area for the company alongside rising small appliances sales as JB Hi-Fi seeks to maximise its physical square footage.
Although retailers are enduring a challenging period at the present time, JB Hi-Fi is forecast to increase its bottom line by over 4% per annum during the next two years. This puts it on a forward P/E ratio of just 11.9, which indicates upward rerating potential, while a fully franked yield of 5.1% should boost total returns yet further.
