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Should you buy shares in Coca-Cola Amatil Ltd and Ramsay Health Care Limited?

Credit: James Flynn

With the Aussie economy enduring a difficult period, many investors may be downbeat about the prospects for the ASX. After all, the index has fallen by 4% since the turn of the year and is still trading 23% below its 2007 high. Looking ahead, many investors may feel that such dizzy heights will not be reached anytime soon, therefore avoiding the purchase of shares in Australia’s leading companies.

While this may be the case in the short run, there are a number of great businesses trading on discounted valuations. Therefore, buying now for the long term could prove to be a sound move since there are relatively wide margins of safety on offer which shift the risk/reward ratio further into the investor’s favour.

For example, Coca-Cola Amatil Ltd (ASX: CCL) has fallen by 7% during the last six months despite making encouraging progress with its strategic goals. Certainly, the company has endured a challenging period, with it becoming relatively inefficient and failing to keep up with changes to consumer tastes in Australia. However, with a major cost-cutting programme which is expected to deliver savings of $100m over the next three years as well as considerable investment in new packaging and a marketing campaign, earnings growth of 5% per annum during the next two years is being forecast.

In addition, Coca-Cola has refreshed its product lineup and has introduced new serving sizes so as to keep up with changing consumer tastes. It has also expanded its operations in Asia, which not only offers greater growth potential than Australia but also diversifies the company’s revenue streams at an uncertain time for the domestic economy. And, with Coca-Cola Amatil offering a yield of 4.5%, it appears to offer strong income and value prospects, too.

Similarly, Ramsay Health Care Limited (ASX: RHC) also appears to be a worthy buy right now. Unlike Coca-Cola Amatil, Ramsay’s business model has enjoyed an excellent recent period and, even though the ASX has been a poor performer in 2015, Ramsay’s shares have risen by 17% since the turn of the year. As such, many investors may feel they are due a pullback – especially since they trade on a price to earnings (P/E) ratio of 32.5.

Despite such a high rating, Ramsay’s stability and long term growth prospects make it a strong buy, since both are likely to become increasingly in-demand as the economy endures an uncertain period. For example, Ramsay has posted a rise in earnings of 17% per annum during the last five years and, looking ahead to the next two years, is forecast to increase its bottom line at an annualised rate of almost 21%. This, plus long term growth potential in new markets such as China, as well as diversified regional exposure, make Ramsay a sound buy while trading on a price to earnings growth (PEG) ratio of 1.56.

Despite this, there is another ASX stock that I believe could outperform Ramsay and Coca-Cola Amatil.

In fact, it's recently been named as The Motley Fool's Top Stock For 2015 and could make a real impact on your bottom line as we move through the year. And, in time, it could help you retire early, pay off your mortgage, or simply enjoy a more abundant lifestyle.

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Motley Fool contributor Peter Stephens has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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