While the name may not be familiar to most Australian investors, Seth Klarman has been referred to as 'The Warren Buffett of his Generation.' Klarman's investment prowess and performance arguably makes this title justified and if that's not enough, he's one of three investment managers which Buffett has previously said he would like to have manage his money!
Not too long ago Klarman noted that on a relative basis, blue-chip stocks looked to offer the best value for large fund managers. While Klarman was indeed talking about the US market and referring to running a very large pool of money, his point appears applicable for many investors who are focused on holding a high quality stock portfolio to provide them with a worry-free retirement.
Although the market as a whole is looking more or less fully valued (blue-chips included), on a relative basis, certain blue-chips may still be the safest place to invest despite their seemingly stretched valuations.
According to data provided by Morningstar, the S&P/ASX 300 Index (Index: ^AXKO) (ASX: XKO) is trading on a forecast 2016 price-to-earnings (PE) ratio of 18.5x, with expected earnings per share (EPS) growth in financial year 2016 of just 6.9% and a forecast dividend yield of 4.75%.
Taking into consideration the expected single-digit earnings growth, the index appears fully priced to me, however there are still opportunities. Here are three blue-chips which could be worthy of a closer look…
- Telstra Corporation Ltd (ASX: TLS) – EPS are forecast to grow 10.5% in the current financial year which places Telstra on a PE of 17.5x with a yield 4.9%
- Origin Energy Ltd (ASX: ORG) – EPS are forecast to grow 53% this year which would place Origin on a PE of 12.4x with a yield of 4.4%.
- Coca-Cola Amatil Ltd (ASX: CCL) – EPS are forecast to grow 7% in 2016, suggesting a PE of 17x with a yield of 4.9%.
