A common goal of all investors is to retire early.
Although not everyone is able to, you could improve your chances by investing in high-quality businesses trading at reasonable valuations. Indeed, you'd be surprised at just how powerful the effects of compounding can be on earnings and dividends over a long period of time.
With this in mind, here are three stocks that seem to fit the bill and, in time, could help you to retire early.
Westpac Banking Corp
As with most of the Aussie banks, the main appeal of Westpac Banking Corp (ASX: WBC) is its yield. It currently stands at a highly enticing 5.5% and is fully franked, which means that it stands head and shoulders above the current interest rate of 2.5%.
As well as a generous income return, Westpac could also post capital gains moving forward. That's because in spite of its shares outperforming the ASX during the course of 2014, being up 2% versus a fall of 1.5% for the ASX, shares in Westpac still have scope for an upward rerating versus the wider market.
Indeed, while the ASX has a P/E ratio of 14.9, Westpac's P/E ratio is 13.6, which seems to indicate good relative value at its present price level.
AMP Limited
Sticking with financial services, AMP Limited (ASX: AMP) has been something of a surprise package in 2014. Not many investors thought that its share price would rise by 17% year-to-date, especially while the ASX is in the red over the same time period. However, that's been the story in 2014, and there could be more to come.
Indeed, AMP's bottom line could be around two thirds higher next year than it was in 2013. Despite this, AMP trades on a P/E ratio of 16, which doesn't appear to fully price in the wealth manager's growth potential. As a result, further share price gains could be on offer if AMP is able to deliver on its optimistic forecasts and the market subsequently adjusts to a much higher bottom line.
Santos Ltd
A 25% fall in the price of oil during 2014 has inevitably caused investor sentiment in Santos Ltd (ASX: STO) to weaken. As a result, shares in the oil and gas producer are down by 13% since the start of the year.
Furthermore, growth prospects are likely to come under pressure as the lower oil price will hit the top and bottom lines of the company moving forward.
However, now could be a great time to buy a slice of Santos. That's because there appears to be a relatively wide margin of safety included in the company's share price. For example, Santos trades on a price to earnings growth (PEG) ratio of just 0.48, so even if actual results do miss forecasts somewhat, shares in the company still appear to offer growth at a reasonable price.
