Is now the perfect time to buy National Australia Bank Ltd. and Insurance Australia Group Ltd?

Should you add these 2 stocks to your portfolio? National Australia Bank Ltd. (ASX:NAB) and Insurance Australia Group Ltd (ASX:IAG)

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While the ASX has disappointed thus far in 2015, it is not without good reason. After all, commodity price falls have been savage, the performance of the domestic economy has been somewhat sluggish and China continues to endure a soft landing as it transitions from being an economy focused on capital expenditure to one led by consumer spending. As such, the ASX's gain of 3% since the turn of the year is perhaps not all that bad – even when you consider that there have been two interest rate cuts year-to-date.

Of course, some stocks have performed worse than the ASX. For example, Insurance Australia Group Ltd (ASX: IAG) has posted a 7% fall in its share price in 2015, with doubts surrounding margins in the Aussie insurance industry being at least partly responsible. And, looking ahead, IAG is expected to disappoint when it comes to earnings numbers, with its bottom line set to fall from $0.56 on a per share basis last financial year to around $0.40 in financial year 2015, before stabilising at the $0.40 level next financial year.

Clearly, investors are unlikely to get excited by such performance, but IAG's share price could still rise due to it having a price to earnings (P/E) ratio of just 14.4. That's lower than the ASX's P/E ratio of 16 and even more appealing when compared to the wider insurance sector's P/E ratio of 18.7.

Furthermore, IAG continues to offer excellent income potential, with it currently yielding a fully franked 6.1%. More importantly, though, is the fact that dividends are still set to be covered around 1.3x by profit in each of the next two years, which means that dividends should be maintained over the short to medium term and, with interest rates being so low, this could stimulate investor sentiment in the stock and push its rating higher.

Meanwhile, National Australia Bank Ltd. (ASX: NAB) has also disappointed in 2015, with its shares rising by just 1% since the turn of the year. As with IAG, it has considerable scope to deliver share price gains moving forward, with its bottom line forecast to rise by 12.1% per annum during the next two years. This, when combined with NAB's P/E ratio of 13.1, equates to a price to earnings growth (PEG) ratio of just 1.08. This is lower than the ASX's PEG ratio of 1.31, even lower than the wider banking sector's PEG ratio of 1.64, and indicates that NAB offers growth at a reasonable price.

Of course, NAB has a rather disappointing track record of financial performance, with its bottom line having risen at an annualised rate of just 2.5% during the last five years. However, with it set to offload relatively unappealing assets such as its UK operations (which include Clydesdale Bank), NAB's future performance looks set to gain a boost, with a falling interest rate likely to increase demand for new loans and push the company's profitability (and share price) northwards.

Motley Fool contributor Peter Stephens has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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