Like most investors, I look over many industries to find those companies that can power returns with solid growth. That's just what Santos Ltd (ASX: STO), SEEK Limited (ASX: SEK) and Tassal Group Limited (ASX: TGR) have to offer recently.
Attractive earnings growth always has to be balanced out with reasonable share prices. That's why doing your homework on your stock picks and patiently waiting for buying opportunities pays off over time.
Santos Ltd
First shipments of LNG from the PNG LNG project helped raise half-year revenue for the energy producer. The second half will show the real impact on earnings of a full six months of shipments. This will lead into next year's start of LNG shipments from the GLNG project in Queensland around mid-2015. Santos is forecasting a step-change up in earnings as the two projects increase LNG production over the coming year. Consensus forecasts tip a high-double digit rise in earnings over the next two years.
The stock has a 21 price-earnings ratio, yet with a fully franked 2.4% yield and consensus forecast tipping an average 39% annual earnings increase over the next two years, the trade-0ff looks attractive.
SEEK Limited
FY 2014 was another year of strong earnings growth for the operator of seek.com.au, Australia's number one job search website. Underlying net profit was up 22%, helped in part by its expanded overseas business in South East Asia. It has a controlling stake in China's largest job search website and owns two more job search companies in Malaysia and Singapore. It has a commanding lead over its competitors in Australia and net profit margins are still over 25%.
SEEK's earnings are forecast by analyst consensus to possibly rise 22% annually in the next two years. However, its price-earnings ratio is sitting high at 32. Successful tech stocks can have higher than average PE ratios, yet the stock has risen quite strongly. It may be better to wait for a pullback to see if any of the market hype will come out of the price.
Tassal Group Limited
The well known producer of Atlantic salmon followed up a strong first half with a full year reported net profit up 22.7%. Successful brand marketing has driven consumer demand for its fish products. This result allows the company to increase FY 2015 production.
Its PE ratio stands at 13 now. Similarly, analysts' forecasts are tipping an average 13% earnings increase annually for the next two years. Together with a 3.00% partially franked yield, it isn't badly priced. If you feel comfortable with a fresh food producer in your portfolio, then this one looks good.
Looking over these three stocks, Santos appeals to me the most. There is always an element of risk with oil resources and big LNG projects not working out as profitable as planned. Despite that, the long-term income streams that can come from its two projects help sway my preference.
There is also another stock that could have market-beating potential. The Motley Fool's top analyst, Scott Phillips, recently identified one cheap but growing ASX stock with a 6.7% grossed-up dividend yield which could be a standout buy.
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