It's true, there's no way of knowing whether or not a particular stock will outperform the market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), over any time frame.
Indeed, be sceptical of anyone who suggests otherwise…
However after years of investing, if there's one thing I know for sure, it's that history has shown time and again investors do better by purchasing 'cheap' stocks — not just those sporting the biggest dividend yields.
Within the top-100 publicly listed Australian stocks – benchmarked by the S&P/ASX 100 (ASX: XTO) (Index: ^AXT) — three stocks frequently bought for income generation are National Australia Bank Ltd. (ASX: NAB), Medibank Private Ltd (ASX: MPL) and Telstra Corporation Ltd (ASX: TLS)…
And with official interest rates stuck at a record low of just 2% per year, perhaps now is a better time than ever to be asking yourself: Is it time to buy these stocks?
To give you a head start over the competition, let's take a quick look at NAB, Medibank and Telstra to see which one's right for you… if any!
National Australia Bank
NAB is the most accident-prone of the big banks. However earlier this month, NAB reported it'd be divesting part of its troubled UK businesses. Clydesdale Bank is one of NAB's two UK subsidiaries and has been the source of many write-downs and provisions over the past decade. Among a few other problems, its UK assets have resulted in NAB's share price significantly underperforming the ASX 200 over the last 10 years.
However despite its shares offering a 5.7% fully franked dividend, in my opinion, there's a strong possibility NAB's shares will continue underperforming in the medium term as the local economy slows. Therefore, I'm not buying shares today.
Medibank Private
Despite its well documented strong start to life as a publicly-listed company, Medibank has actually underperformed the broader market by around 6% since the time it went through the Initial Public Offering (IPO) process in late 2014. Despite delivering on much of the forecasts it set out in last year's IPO prospectus, shares of Australia's leading private health insurer continue to trade at an expensive valuation, even at their current price tag of $2.13 per share.
Therefore I'd advise investors avoid buying Medibank shares for the time being.
Telstra
As the leader of Australia's telecommunications industry, Telstra is in an enviable position among its peers. By charging higher prices for its superior products, it continues to generate huge cash flows which have been used to reinvest in new growth areas and/or pay big dividends to shareholders. However after more than doubling in price over the past five years, personally I find it hard to envisage Telstra shares beating the ASX 200 from today's prices. Currently sitting at $6.19 per share, I think Telstra is a hold.
