With the outlook for the Aussie economy and the ASX being somewhat uncertain, it appears as though investors are willing to pay a premium for companies that offer strong growth prospects. After all, the domestic economy continues to come under pressure from weak commodity prices and the extent of their impact upon the economy is a known unknown.
As a result, dependable stocks such as pharmaceutical company, CSL Limited (ASX: CSL), could see their ratings expand moving forward. Certainly, there is room for expansion in CSL's price to earnings (P/E) ratio, with it trading on a P/E ratio of 23.6 at the present time. This may seem high while the wider pharmaceuticals sector has a P/E ratio of just 13.2, but with CSL's earnings expected to grow by over 20% per annum during the next two years, its price to earnings growth (PEG) ratio of 1.17 holds significant appeal.
Similarly, shopping centre operator, Scentre Group Ltd (ASX: SCG), may have a P/E ratio of 26.5, but when this is combined with its earnings growth outlook it equates to a PEG ratio of just 0.27. That's significantly lower than the real estate sector's PEG ratio of 2.19. Of course, Scentre Group is a much more cyclical play than CSL, with its earnings being more closely correlated to the macroeconomic outlook. However, with such a low valuation, it appears to have a sufficiently low margin of safety so that even if the consumer goods and retail sectors disappoint, its shares could continue to perform well.
Meanwhile, toll road and tunnel operator, Transurban Group (LSE: TCL), is one of the most reliable growth stocks on the ASX. Over the last 10 years it has increased cash flow per share at an annualised rate of 13.9% and, with new operations to come on stream, its financials look set to gain a boost moving forward with earnings growth of 30.9% per annum forecast for the next two years. As with CSL and Scentre; Transurban still offers good value for money, with its shares having a PEG ratio of 1.14, versus 1.3 for the ASX.
Interestingly, CSL, Scentre and Transurban all differ in terms of their volatility. For example, CSL has a beta of 0.6, Scentre Group's is 1.45 and Transurban's beta is 0.9. As such, they provide a healthy mix of prospects in terms of their shareholder experiences and, as such, seem to be worth buying together in order to reduce company-specific risk within a portfolio. And, of course, the one thing they have in common is that they are among the most appealing growth stocks on offer at the present time.
