It can be challenging to find stocks that offer bright future prospects at a reasonable price. After all, impressive future performance tends to be priced in by the market and leads to a relatively high valuation, thereby reducing the scope for further share price gains. And, should future prospects fail to be delivered, then highly rated stocks can see their share prices fall rapidly.
However, there are always stocks on offer within the ASX that could be set to post excellent total returns in the long run. Two notable examples at the present time are Suncorp Group Ltd (ASX: SUN) and QBE Insurance Group Ltd (ASX: QBE), with their growth prospects being upbeat and their valuations being hugely enticing.
For example, QBE is set to continue its successful turnaround plan that has seen it divest a number of non-core assets so as to reposition its risk/reward ratio and deliver a more streamlined and focused business. The latest instalment in this project was announced this week, with QBE divesting its mortgage and lender services business in North America for $90m. While this is around $120m less than the unit's book value, the market seems to have welcomed the move as it shows that QBE is continuing to improve its financial standing and profitability.
Looking ahead, QBE is forecast to post a rise in its bottom line of around 59% during the next two financial years, which given that it was loss-making in recent years, is a major improvement. Despite this, QBE trades on a price to earnings (P/E) ratio of just 18.7 which, when combined with its growth rate, equates to a price to earnings growth (PEG) ratio of only 0.72. That's around 45% lower than the ASX's PEG ratio of 1.32 and indicates that its share price could continue to rise even though it is already up by 29% since the turn of the year.
Meanwhile, Suncorp also has a very bullish outlook, with its bottom line expected to rise by an incredible 75% during the next two financial years. Despite this, investors are not particularly excited about the stock, since it is up less than 1% since the turn of the year. However, such strong growth prospects have the capacity to catalyse investor sentiment – especially when Suncorp has a PEG ratio of just 0.47.
Furthermore, Suncorp also has an excellent track record of delivering stunning growth numbers. For example, it posted a rise in its net profit of 48% last year and, in the last five years, has seen earnings rise at an annualised rate of 13%. And, with its own restructuring having made the business more efficient and focused (for example following the sale of non-core assets to Goldman Sachs two years ago), its long-term prospects are also bright. As such, optimistic guidance does not appear to be unjustified and, alongside QBE, Suncorp seems to be an appealing buy at the present time.
