Over the course of the last year, the ASX has risen by a rather disappointing 4%. That's not to say, of course, that all stocks listed on the main index have delivered such lacklustre performance. For example, shopping centre operator, Scentre Group Ltd (ASX: SCG) has seen its share price rise by 25% since listing in June 2014, as interest rate cuts have aided the company's earnings outlook.
And, while the mining sector has been hit hard in the last year, the gold price has fared much better than other commodities in terms of its price level and this has been a major factor in Newcrest Mining Limited (ASX: NCM) posting capital gains of 39% in the last year. Meanwhile, although up just 5% itself, Commonwealth Bank of Australia (ASX: CBA) is ahead of the ASX in the last year, with improved profitability driving investor sentiment higher.
The question, though, is can all three stocks keep their outperformance of the ASX going over the next year and beyond?
Scentre
While the ASX has a price to earnings (P/E) ratio of 16.7, Scentre trades on a P/E ratio of 31.6. This, however, does not paint the full picture, since Scentre is expected to increase its bottom line at a rapid rate over the next two years and this puts it on a price to earnings growth (PEG) ratio of just 0.33, which compares favourably to the ASX's PEG ratio of 2.31.
In addition, Scentre looks set to continue to benefit from the recent cut in interest rates, since they could have the effect of boosting the Aussie economy and improving consumer confidence following a time lag. In the meantime, Scentre's yield of 5.4% should also keep investor sentiment in the company relatively buoyant and allow it to continue beating the ASX.
CBA
A major advantage of investing in CBA is its reduced volatility compared to the wider index. For example, CBA has a beta of just 0.79 and this indicates that its shares should (in theory) move by just 0.79% for every 1% move in the wider index. And, with the outlook for the ASX being somewhat uncertain, this could allow CBA to outperform a struggling wider index.
In addition, CBA has a strong track record of earnings growth. For example, over the last five years it has grown its bottom line at an annualised rate of 11.6% and, with it trading on a P/E ratio of 15.1, it could extend its outperformance of the ASX over the medium term – especially if interest rates do increase demand for new loans.
Newcrest
Although Newcrest does trade at a slight premium to the ASX with regard to its book value, with it having a price to book (P/B) ratio of 1.47 versus 1.35 for the ASX, its growth potential means that it is worthy of such a premium. For example, over the next two years Newcrest is expected to increase its bottom line at an annualised rate of 32.8%, with the outlook for the gold price being more positive than for many other commodities.
And, with Newcrest benefitting from improved finances following annualised growth in its cash flow of 7.3% during the last ten years as the company has made efficiencies and cut costs, it appears to be well-placed to continue its superb outperformance of the ASX over the long term.
Of course, finding index-beating stocks is a tough task – especially when work and other commitments limit the amount of time you can spend trawling through the index for them.
