The combination of recent market gyrations and the upcoming August reporting season make now a good time for investors to review their portfolio and consider how they are positioned.
While all of the following five stocks could be considered high quality and worthy of a 'buy-and-never-sell' strategy; investors may consider whether it is worth selling the following three stocks.
All of which have forecast earnings per share (EPS) growth rates below their forecast price-to-earnings (PE) ratios.
Cochlear Limited (ASX: COH) – In the current 2016 financial year (FY), this leading medical device company is forecast to grow EPS at 14.7%. Meanwhile, it trades on a forecast PE of 27.9x.
Ramsay Health Care Limited (ASX: RHC) – Australia's leading private hospital operator is forecast to increase EPS by 14.8% in FY 2016; it trades on a forecast PE of 27.6x.
CSL Limited (ASX: CSL) – EPS growth of just 8.2% is forecast in FY 2016 for this biopharma group. Investors need to determine if a forecast PE of 23.3x supports this single-digit growth rate.
Comparing EPS growth and PE ratios is neatly analysed by using the PEG ratio. Users of a PEG ratio are generally drawn towards stocks trading on PEGs close to or below 1. The following three stocks could fit that bill.
Ansell Limited (ASX: ANN) – This latex manufacturer has a FY 2016 EPS forecast growth rate of 12.8% which places the stock on a forward PE of 13.3x which is very close to a PEG of 1.
QBE Insurance Group Ltd (ASX: QBE) – Analysts are forecasting improved earnings for this global insurer with EPS in FY 2016 expected to grow by 29.6%. This places QBE on a seemingly undemanding PE of 13.4x.
Admittedly there are problems with using a PEG ratio but it can offer a starting point for investors when trying to determine if a stock may be over, under or fair value.
Looking for a stock which looks decidedly undervalued?
