Over the last five years, the ASX has risen by a less than impressive 18%. That works out at an annualised rate of just 3.4%, which is only just ahead of the current rate of inflation.
However, a number of blue chips have performed even worse over the period and left investors with very little to shout about in terms of capital gains.
Here are three such companies that, as well as underperforming the ASX during the last five years, also have in common the potential to turn the tables in the next five years and beat the wider index.
Macquarie Group
Shares in Macquarie Group Ltd (ASX: MQG) have risen by 14% over the last five years, which works out at an annualised rate of just 2.7%. However, there could be much better to come in future years, with the company recently recording an uplift of 35% in its bottom line.
Indeed, Macquarie is expected to increase earnings at an annualised rate of 7.9% over the next two years and is currently showing particular strength in its funds division, where profit improved by over 50% in its most recent half-year results.
In addition to excellent capital gains potential, Macquarie also has a partially franked yield of 4.6% that is set to be well covered by profit at 1.4 times in the current year. This mix of growth and income potential could increase demand for shares in Macquarie and help it to beat the ASX over the medium to long term.
Fortescue Metals Group
The last five years have been incredibly challenging for investors in Fortescue Metals Group Limited (ASX: FMG), with the iron ore specialist seeing its share price fall by 13% during the period. Of course, it has coincided with a vast weakening in demand for commodities (and their prices), but Fortescue seems to now have light at the end of the tunnel.
Indeed, Fortescue trades on a P/E ratio of just 10.3 (using next year's lower earnings forecast), and evidence of just how cheap its share price is can be seen in its current yield. Even though Fortescue pays out just 30% of profit as a dividend, it still yields a fully franked 4.7%.
Certainly, risks remain with regard to Fortescue's debt levels and the future price of iron ore but, with such a low valuation, a considerable margin of safety seems to be priced in.
Rio Tinto Limited
With a vast exposure to iron ore, the last five years have also been difficult for investors in Rio Tinto Limited (ASX: RIO). Its share price has fallen by 6% during the period and, as with Fortescue, its future performance is largely dependent upon the price of the commodity moving forward.
However, Rio Tinto has also responded effectively to the tough period by attempting to lower its cost curve even further through increased efficiencies and the mothballing of various projects. This means that margins still remain healthy – especially compared to international competitors, and with shares in the company trading on a P/E ratio of just 10.4, they appear to offer good value alongside a fully franked yield of 3.8%. As a result, Rio Tinto could reverse recent underperformance and beat the ASX moving forward.
