This week saw the ASX reach its highest point since June 2008. A momentous occasion, I'm sure you'll agree, but one that many investors are thinking could mean the top of the market, with a correction being just around the corner.
However, even though the ASX is now at a six-year high, there is still good value to be had among a number of large-cap stocks. Here are three that trade on lower P/Es than the ASX and could be long term winners.
- Orica
It's been a rather disappointing year for investors in Orica Ltd (ASX: ORI), with shares in the chemicals company down 8% year-to-date, while the ASX is up 3% over the same time period. However, this period of underperformance means that Orica now trades at a significant discount to the wider market. Indeed, its P/E of 13.4 (trailing 12 months) is over 18% lower than that of the ASX, which has a P/E of 16.3. With earnings forecast to grow by 7.9% next year, Orica could offer growth at a very reasonable price.
- Insurance Australia
Meanwhile, even better value appears to be on offer at Insurance Australia Group Limited (ASX: IAG), with the insurance company trading at a huge 30% discount to the ASX. However, it doesn't just come with a relatively low P/E of 11.5 (trailing 12 months), IAG also offers a top-notch (and fully franked) yield of 5.9%. This easily beats the yield on the ASX (4.5%) and, furthermore, dividends are well-covered at 1.3 times. This shows that there is a strong yield opportunity as well as an enticing value play on offer at IAG.
- Leighton Holdings
More great value and income appeal is on offer at Leighton Holdings Limited (ASX: LEI), with shares in the international contractor yielding 5.1% (50% franked) and trading on a trailing 12 month P/E of just 13. That's despite shares in Leighton posting strong gains in 2014, with an increase of 31% already having been made. Although growth prospects over the next year are rather pedestrian (EPS is forecast to increase by just 1.8% next year), the potential for a significant upwards P/E rerating plus a super yield could mean shares in Leighton continue to outperform the ASX over the medium to long term.
One more top yielding pick
