Unless a great bear market occurs (such as was seen from 2007 until 2009), it's rare for all companies in the stock market to experience a significant fall in valuations over the short run.
Certainly, the index as a whole can disappoint, as we have seen in the last six months, with the ASX being down 1%. However, there are usually a number of stocks that deliver absolute gains, as well as there being stocks that post absolute losses, too.
Looking at the last year, commodity stocks such as Santos Ltd (ASX: STO) have fallen significantly, while health care companies such as CSL Limited (ASX: CSL) have generally performed well. Meanwhile, financials such as QBE Insurance Group Ltd (ASX: QBE) have endured a rather mixed period.
So, with the future of the ASX being decidedly uncertain, is now the right time to buy a slice of Santos, CSL and QBE, given their differing performance during the last year?
Santos
Having fallen by 49% in the last year, investors in Santos have clearly endured an exceptionally difficult period. And, with the price of oil showing little sign of picking up anytime soon, sentiment could decline further in the short run.
However, looking at Santos' longer term future, it could be worth buying a slice of. That's because its valuation appears to price in yet more falls in the price of oil, evidenced by Santos trading at just 73% of its net asset value at the present time. Certainly, its profitability forecasts have been hit, but Santos is still forecast to grow its bottom line by 15% in the current year and has the GLNG project yet to come onstream.
As a result, it could turn out to be a great, albeit volatile, long term buy.
CSL Limited
Unlike Santos, CSL has enjoyed fantastic share price performance in the last year, with its value as a company rising by a whopping 28%. Prior to that, many investors were understandably concerned about CSL's valuation becoming rather rich and, although its price to earnings (P/E) ratio now stands at 27.1, it could move higher if the ASX's outlook continues to be uncertain.
That's because investors value companies with relatively robust earnings profiles to an even greater extent during periods of uncertainty and, with its bottom line forecast to rise by 16.7% per annum over the next two years, CSL seems to fit into that bucket very neatly.
Certainly, its dividend yield of 1.6% is disappointing, but with dividend growth of 15.5% per annum forecast for the next two years, it could become a much more enticing yield play over the medium term.
QBE
The present time is a period of tremendous change for QBE and, although its share price has fallen by 8% in the last year, it has stabilised in the last few months. Part of the reason for this is improving sentiment, with investors gradually becoming more interested in QBE after considerable rationalisation, restructuring and refinancing. While the end result may not be apparent for some time yet, QBE appears to be well on its way to higher profitability, with it being forecast to post earnings growth of 31% in the current year, for example.
In addition, QBE has a very low beta of just 0.6. This means that its share price should (in theory) move by just 0.6% for every 1% move in the ASX, and if the wider index does have a tough year, shares in QBE could outperform it. As a result of this defensive attribute and a growing bottom line, QBE could be a top performer in 2015.
Of course, finding the best stocks at the lowest prices is not an easy task. That's especially the case if, like most investors, you lack the time to trawl through the index looking for them.
