2 shares to get rich: CSL Limited and Coca-Cola Amatil Ltd

These 2 shares have significant long term potential: CSL Limited (ASX:CSL) and Coca-Cola Amatil Ltd (ASX:CCL)

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After a disappointing 2015 which saw the ASX slide by 2%, 2016 has got off to a rather challenging start. That's because a drop in the value of Chinese stocks has hurt investor sentiment in the ASX and across the globe, with European and US markets also being in the red yesterday.

Looking ahead, further volatility seems to be almost inevitable and, as such, many investors may be wary about buying shares at the present time. However, for long term investors, volatility can be a useful ally and can cause high-quality companies to trade at a discount to their intrinsic values.

For example, health care company CSL Limited (ASX: CSL) offers a superb track record of reliable growth figures, with its bottom line rising at an annualised rate of 15.1% during the last five years. This, plus a beta of just 0.6, indicates that it is less impacted by the macroeconomic outlook than many of its ASX peers and could prove to be a sound, less volatile buy through 2016.

This is emphasised by the fact that CSL generates the majority of its earnings from outside Australia and, if the Chinese economy does continue to falter and hurts the outlook for the Australian economy, a weakening Aussie dollar could cause a boost in CSL's bottom line. This, alongside the successful integration of CSL's new influenza vaccine business which was acquired from Novartis, could transform the company's profitability.

In fact, CSL is forecast to post a rise in its earnings of 26% in financial year 2017 which, alongside a price to earnings (P/E) ratio of 28.4, equates to a price to earnings growth (PEG) ratio of 1.1. This is lower than the ASX's PEG ratio of 1.4.

Similarly, Coca-Cola Amatil Ltd (ASX: CCL) also appears to be worth buying as the present time, with its transformation strategy set to result in a rise in net profit of 6.3% in financial year 2016. This provides evidence of the progress being made at the company, where costs have been slashed and investment has been made in new products, new marketing tools and also in expanding into Indonesia via a US$500m investment.

While this investment is likely to put Coca-Cola Amatil on a sound long term growth trajectory, in the meantime its appeal as an income stock remains high via a dividend yield of 4.6%. Although interest rate falls may or may not be a feature of 2016, a stable income stream from a dividend which is set to be covered 1.3 times by profit this year should help to keep investor sentiment in Coca-Cola Amatil buoyant.

In addition, Coca-Cola Amatil stated in its first half results that earnings in its alcohol and coffee division increased by 30.4%, which provides it with a degree of diversification and additional growth potential.

With Coca-Cola Amatil strengthening its relationship with Beam Suntory in Australia and New Zealand, it appears poised to continue to deliver upbeat growth over the medium term. And, with it trading on a price to sales (P/S) ratio of 1.4 versus 1.42 for the ASX, it seems to be reasonably priced, too.

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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »