The financial year just ended saw the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) increase by 17%. As the chart below shows, over the same 12 month period Brambles' (ASX: BXB) share price blitzed the index increasing by over 51%, meanwhile Origin Energy (ASX: ORG) and QBE Insurance (ASX: QBE) both underperformed the index.
Source: Google Finance
As we begin September the S&P/ASX200 Index is already up 8% for this financial year. Over this period QBE's share price has been relatively flat, Brambles shares have fallen nearly 6% and Origin Energy's shares are up 11%. While trying to forecast the direction of a share price over a short time frame (such as 12 months) could well be described as foolish, determining the outlook for business performance is definitely a Foolish pursuit and on this measure these 3 blue chip companies have reasonably bright prospects.
Brambles has already announced plans to demerge its document management business Recall, as Recall is considered a drag upon the faster growing pooling business. Demergers often create value for shareholders with the sum of the parts being greater than the whole. With signs of an improving US economy – a major market and key growth region for Brambles pooling operations – the benefits of a demerger and an improving US economy could set the stage for solid business performance.
Origin Energy faced a number of headwinds during FY 2013. In FY 2014, a more friendly regulatory environment should an Abbott-led government get elected, coupled with major projects moving closer to completion, could lead the market to become more positive on Origin's earnings outlook.
QBE Insurance, like Brambles, has a substantial business in the USA. This has been a drag on the insurer over the past financial year however with the US economy looking to be strengthening and talk of 'tapering' by the US federal Reserve which should drive up bond yields – an important input to QBE's earnings – QBE could be primed to benefit from an improving operating environment.
Foolish takeaway
While investors should always consider the valuation of a company and avoid overpaying for stocks, it is also important to try and tune out to the noise of daily share price movements and focus on a company's underlying business performance and outlook. In the long-run it is business performance that will determine a stock's price level.
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Motley Fool contributor Tim McArthur owns shares in Origin Energy and QBE Insurance.
