After a difficult few weeks at the start of the year, the good times are back for the ASX! Certainly, it's still some way off its 2007 high of 6,748, but has made excellent gains since the turn of the year and is up 10% year-to-date at 5,956.
Of course, this gain has led many investors to wonder whether 6,000 points is just around the corner. Clearly, with the potential for further interest rate cuts, investor sentiment could continue to rise, but may be pegged back somewhat by a feeling that the ASX is rather richly valued given the current state of the economy. After all, a price to earnings (P/E) ratio of 16.9 is not exactly a bargain.
Despite this, there are a number of great value stocks that are worth buying right now. Here are three prime examples.
BHP Billiton Limited
BHP Billiton Limited (ASX: BHP) is currently experiencing a very challenging period, with falling commodity prices (notably iron ore and oil) causing the diversified mining company's forecasts to be rather negative. For example, it is expected to report an annualised fall in earnings of 18.3% during the next two years.
However, its P/E ratio of 14.4 appears to adequately compensate for this, and the company's strategy of spinning off non-core assets via South32 could also help it to become more efficient and more productive over the medium to long term.
Furthermore, BHP Billiton has a yield of 4.6% (fully franked) and its strategy of maintaining high levels of production should enable it to emerge as a stronger entity relative to its peers.
Wesfarmers Ltd
On the face of it, it seems as though the Aussie supermarket sector is set to head the same way as the UK, with consumers seeking out no-frills, cheaper alternatives while the economy is enduring a tough period. While that could help the likes of Aldi and Costco, Wesfarmers Ltd (ASX: WES) still has a very efficient supply chain, excellent locations and a surprisingly high degree of customer loyalty that could help it to overcome rivals.
In addition, Wesfarmers offers its investors a significant degree of stability, with its conglomerate structure helping to smooth out the ups and downs of the various sectors in which it operates. Despite this, it has a price to sales (P/S) ratio of 0.84 (versus 1.63 for the ASX) and, with a beta of just 0.6, it offers even less share price volatility than the wider market.
Santos Ltd
While the recent fall in the oil price is undoubtedly bad news for Santos Ltd (ASX: STO), it must be borne in mind that the company has huge potential from its liquefied natural gas (LNG) project. In fact, Santos' growth forecasts are very upbeat, with the company being expected to see its bottom line rise by a whopping 83% in 2016. This puts it on a forward P/E ratio of 14.8.
In addition, Santos also offers a fully franked dividend yield of 4.5% and, with investor sentiment hotting up in recent weeks, its beta of 1.37 could enable it to outperform a rising ASX over the medium term. Furthermore, its price to book (P/B) ratio of just 0.76 is much lower than the ASX's P/B ratio of 1.33.
