As most investors know, buying high-quality companies when they trade at reasonable prices is one of the simplest ways to grow your wealth.
Of course, that's not to say it's easy. There can be hugely negative news flows, economic crises, bear markets and periods of uncertainty to deal with. However, in time, the best companies tend to come good and, if you can buy them at a decent price, your portfolio will be all the better for it.
So, with that in mind, are these three companies worth buying right now? Or, should you look elsewhere for long-term returns?
Insurance Australia Group Ltd
Looking back at the recent performance of Insurance Australia Group Ltd (ASX: IAG), the insurer has delivered exceptional earnings growth over the last five years. For example, its bottom line has risen at an annualised rate of 43.3% during the period, which is still an astounding rate of growth even though the sector has experienced a milder few years when it comes to claims experience.
As a result of such strong earnings growth, total returns for investors in IAG have been appealing and total a whopping 16.6% per annum over the last five years. Despite this, shares in the company still seem to offer considerable upside, since they trade on a price to earnings (P/E) ratio of just 12.2.
That's 32% lower than the wider insurance sector's P/E ratio of 18 and shows that there could be much more ahead for IAG's shareholders, simply from an upward rerating to its valuation. As such, IAG could be worth buying right now.
Amcor Limited
It's a similar story at Amcor Limited (ASX: AMC), with the packaging specialist seeing its earnings grow by 16.5% per annum over the last five years. As with IAG, its shareholder returns have been hugely impressive, too, with them annualising at 25% since the start of 2010. That's well in excess of the wider index and may be causing some investors to consider taking profits.
However, Amcor could have further share price gains ahead of it. That's because it seems to offer investors the optimum mix of growth and defensive qualities, with its move into higher margin, higher demand packaging improving its long-term earnings growth profile and yet also providing relative stability during uncertain periods.
As a result, if the present uncertainty among investors continues, Amcor could benefit, while an improved outlook for the world economy could also stimulate demand for its products, too. Either way, Amcor seems to be worth buying at the present time.
Wesfarmers Ltd
When it comes to Aussie retailers, Wesfarmers Ltd (ASX: WES) is one of the few companies that dominates the landscape. That's because it has numerous brands, such as Coles, Target and Kmart, which provide it with a diversification and stability that investors seem to value highly – especially during uncertain periods.
However, at the present time, Wesfarmers seems to offer excellent value for money despite being a 'go-to' stock for many investors during periods of insecurity for the ASX. Evidence of this can be seen in Wesfarmers' current price to sales (P/S) ratio, which currently stands at just 0.81. That's considerably lower than the 0.96 P/S ratio of the wider retail sector and shows that Wesfarmers could see an uplift to its valuation moving forward. As such, it could be worth adding to your portfolio right now.
