For many investors, finding stocks that offer strong growth prospects that trade at a reasonable price is extremely challenging. In fact, with the Aussie economy going through a difficult period, as evidenced by the RBA deciding to cut rates and unemployment being stubbornly high, finding companies with strong growth potential is arguably rather tough at the moment. And, with the ASX trading on a price to earnings (P/E) ratio of 16.8, the stock market is hardly in bargain basement territory.
Despite this, there are still a number of high quality companies that have bright futures and yet trade at prices that indicate significant upside lies ahead. Here are three prime examples that could boost your portfolio's returns.
QBE Insurance Group Ltd
Over the next two years, QBE Insurance Group Ltd (ASX: QBE) is forecast to increase its bottom line at an annualised rate of 23.4%. That's significantly ahead of the wider market's growth rate and, despite this, QBE trades at only a slight premium to the ASX, with it having a P/E ratio of 18. However, its rating is lower than the wider insurance sector P/E ratio of 19.4 and, when QBE's P/E ratio is combined with its forecast growth rate, it equates to a price to earnings growth (PEG) ratio of only 0.77.
Certainly, there is more work for QBE to do in terms of cost reduction and rationalising its business so as to make it more efficient, leaner and more profitable. However, it may be on the right track and, with the ASX having a PEG ratio of 2.44, it appears to be a strong buy.
Oil Search Limited
Even though Oil Search Limited (ASX: OSH) has recently suffered a setback regarding its gas ambitions in Papua New Guinea, its earnings growth forecasts remain upbeat. So, while a major exploration well recently found water instead of gas, Oil Search is still expected to increase its bottom line at an annualised rate of 24.3% during the next two years.
Compared to its energy sector peers, that's a strong rate of growth and, despite this, Oil Search trades on a P/E ratio of 23.8. When combined with its forecast growth rate it equates to a PEG ratio of just 0.98, which is attractive when you consider that many companies in the sector are anticipating a fall in earnings during the same period.
CSL Limited
With a PEG ratio of 1.28, CSL Limited (ASX: CSL) offers better growth and value potential than the ASX, which has a PEG ratio of 2.42. In addition, it offers investors the opportunity to experience a lower degree of volatility, since CSL has a beta of just 0.6. This means that its share price should change by just 0.6% for every 1% move in the wider index, which could prove useful given the challenges facing the wider economy.
Furthermore, CSL does not rely on the macroeconomic outlook for its growth. Evidence of this can be seen in the fact that it has posted bottom line gains of 21.4% per annum during the last ten years, thereby offering consistency and growth at a reasonable price.
