The performance of the ASX in recent years has been rather disappointing. Certainly, the global financial crisis has hurt its longer term performance, with the index being up just 42% in the last ten years, but even in the last five years the ASX has risen by just 26%. This works out as an annualised growth rate of just 4.7% per annum and is even behind the UK's performance during the same time period, with the FTSE 100 rising by 35% (or 6.2% per annum) during the same timeframe even though its economy was hit relatively hard by the financial crisis.
Clearly, the returns above are not bad; just disappointing and many investors will wish to beat such a level of return. Finding the stocks to do so can be tough, of course, but here are three companies with bright futures, which offer excellent value for money.
CSL Limited
Over the last five years, shares in pharmaceutical company, CSL Limited (ASX: CSL), have risen by a whopping 165%. A key reason for this has been a rapidly growing bottom line, with CSL posting earnings growth of 10.8% per annum during the period, which has improved investor sentiment in the company. And, looking ahead, CSL is expected to increase its net profit by 20.2% per annum over the next two years, which could push its share price even higher.
Certainly, CSL trades at a substantial premium to the ASX. For example, it has a price to earnings (P/E) ratio of 24 versus 16.6 for the ASX. However, when the company's growth rate is taken into account it equates to a price to earnings growth (PEG) ratio of 1.19, which appeals compared to the ASX's PEG ratio of 2.33.
BHP Billiton Limited
Over the last year, BHP Billiton Limited (ASX: BHP) has underperformed the ASX by 16%, but this could all be about to change. That's at least partly because China is attempting to stimulate its economy through a series of interest rate cuts and, while they will inevitably take time to have an effect, the world's second largest economy could transition away from the soft landing that has hurt demand for iron ore and other commodities in recent months.
In addition, BHP continues to offer strong dividend growth, with dividends per share forecast to rise at an annualised rate of 12.2% during the next two years. This puts it on a forward yield of 5% and, with interest rates in Australia set to move lower, BHP could see investor sentiment pick up as demand for higher yield stocks rises.
Santos Ltd
It is an exciting time to be a shareholder of Santos Ltd (ASX: STO), with the liquefied natural gas (LNG) producer set to see its production increase dramatically as the Gladstone LNG project comes onstream later this year. And, even though a lower oil price has hurt sentiment in the company, with its shares falling by 39% in the last year, Santos' bottom line is expected to almost double in 2016 so as to be slightly higher than it was back in 2014. This could improve investor sentiment – especially since the outlook for the oil price is brighter than it was even just a few months ago.
Furthermore Santos has a price to book (P/B) ratio of just 0.9, which compares favourably to the ASX's P/B ratio of 1.33. And, with a forward dividend yield of 4.2%, Santos' total returns could turn the tables on what has been a challenging 12 months for the energy play.
Of course, finding the best stocks for the long term is a tough ask – especially when work and other commitments limit the amount of time you can spend trawling through the index for them.
