With the ASX being flat over the last year, it's perhaps unsurprising that many investors are questioning the merits of stock market investing.
That's especially the case since the performance of the index has been relatively volatile and it has not been uncommon for the portfolios of investors to swing wildly between profit and loss during the course of the last year.
With this in mind, here are three stocks that could outperform the ASX in future, as well as offer a less volatile experience along the way.
CSL Limited
As well as being a relatively defensive play due to the nature of its business, pharmaceutical stock CSL Limited (ASX: CSL) also has a low beta. This means that its share price should be less volatile than the wider index and, with it having a beta of just 0.6, in theory it should equate to a 0.6% price change for every 1% move in the ASX.
Of course, there's much more to CSL than just defensive characteristics. For example, it is forecast to increase its bottom line by 16.7% per annum over the next two years and, with its bottom line having risen at an annualised rate of 21.4% over the last ten years, it has a strong track record of growth that indicates relative certainty when it comes to meeting future guidance. As a result, it could be worth buying right now.
Insurance Australia Group Ltd
While insurance companies are highly cyclical, with profit being relatively volatile depending upon their claims experience within a given year, shares in Insurance Australia Group Ltd (ASX: IAG) have a low beta of 0.55. As with CSL, this means that they should provide investors with a less volatile experience than the wider index, which may prove to be a real asset in 2015 if the ASX experiences another uncertain year.
In addition, IAG offers a stunning (and fully franked) yield of 6.2%. That's 2.5 times the current interest rate and could attract yield-hungry investors through the course of the year, thereby providing IAG with additional defensive characteristics. Furthermore, a price to earnings (P/E) ratio of 11.9 indicates that there is upward rerating potential on offer, especially since the wider insurance sector has a P/E ratio of 17.7 and the ASX has a P/E ratio of 15.
Woolworths Limited
Retail stocks such as Woolworths Limited (ASX: WOW) could benefit in 2015 from lower interest rates. But even if that doesn't happen, it could still prove to be a sound investment.
That's because Woolworths offers an appealing mix of income, value and defensive qualities. For example, it currently has a yield of 4.9% and trades on a price to sales (P/S) ratio of just 0.61. Both of these figures are appealing on a relative basis, with the ASX having a yield of 4.6% and the wider food retailing sector having a P/S ratio of 0.94.
In addition, Woolworths remains a top defensive play, as indicated by a beta of only 0.66. With the market's future remaining highly uncertain, a potent mix of value, income and defensive qualities from a food retailer such as Woolworths could prove to be a winning combination.
Of course, finding stocks to add to your portfolio is no easy task – especially if, like most private investors, you lack the time to trawl through the stock market looking for the best companies at the lowest prices.
