At the present time, many investors may be somewhat wary about ploughing their hard-earned cash into the ASX. After all, its performance over the last 10 years has been somewhat disappointing, with it rising by just 3.3% per annum during the period. Of course, that includes the global financial crisis that wiped $billions from the value of stocks across the globe and, in fact, the ASX is yet to fully recover.
As such, and while the RBA seems intent on pursuing an increasingly loose monetary policy, investor confidence is not particularly high. This, then, could prove to be an opportune moment to 'buy low' and, later on, 'sell high'. Could these three stocks be a good way to do just that?
Woodside Petroleum Limited
Although Woodside Petroleum Limited (ASX: WPL) is better shielded than many resources companies from the low oil price, its bottom line is still being hurt by a challenging operating environment. In fact, despite liquefied natural gas (LNG) making up the vast majority of Woodside's sales, over the next two years the company's bottom line is forecast to fall by 25.2% per annum.
As such, Woodside's current price to earnings (P/E) ratio of 12.1 is not all that useful, with it set to rise to around 18.3 next year (if its share price remains at its present level).
This may be higher than the ASX's P/E ratio of 17, but when you consider that Woodside has a strong balance sheet, excellent cash flow and is exposed to a niche with huge long term potential (LNG), then it appears to be worthy of a purchase despite the premium price tag.
CSL Limited
With uncertainty being heightened at the present time, it is likely that many investors will begin to seek out relatively stable companies. One way of assessing this is to focus on the track record of a business and, on this front, CSL Limited (ASX: CSL) impresses since in the last 10 years it has increased its top line by 11% per annum, and its bottom line by 21.4% per annum.
Certainly, its current valuation is generous, with CSL having a price to book (P/B) ratio of 13.1. However, this has not held its shares back, with them having risen by 32% in the last year despite warning earlier this year that its growth rate would be less than previous guidance. In fact, with its net profit set to rise by 20.2% per annum over the next two years, its shares could continue to move upwards over the medium term.
Insurance Australia Group Ltd
Insurance Australia Group Ltd (ASX: IAG) could be a major winner from the RBA's loose monetary policy. That's because it currently yields a whopping 6.3% and, with investor demand for dividend yields likely to increase as cash balances offer an ever-reducing return, IAG's shares could be pushed higher. Furthermore, IAG has an excellent track record of dividend growth with, for example, shareholder payouts having increased at an annualised rate of 4.4% during the last 10 years.
In addition, IAG's planned push into foreign markets (notably Asia) could benefit from favourable currency movements if the Aussie dollar continues to weaken over the medium term. As such, IAG's P/E ratio of 13.5 looks appealing – especially when the wider insurance sector has a P/E ratio of 19.9.
