Life as an investor can be hugely disappointing at times. And, just as it is frustrating to miss out on buying a stock that goes on to post strong returns, it is also challenging to deal with a company that has experienced a declining share price since it was purchased.
However, all investors must face those situations at some point in their journey towards retirement and, while a falling share price can seem like a major problem, it also creates opportunity to buy in at a much more appealing valuation. As such, some of the best investment opportunities come from high quality stocks that are enduring difficult periods either because of external factors or a poor strategy.
Two notable examples of stocks that have been beaten by the ASX in the last year are oil and gas producer, Woodside Petroleum Limited (ASX: WPL), and diversified retailer, Super Retail Group Ltd (ASX: SUL). While the ASX has dipped by 1% in the last twelve months, they have fallen by 19% and 4% respectively, with Woodside Petroleum being hurt by the continued weakness in the price of oil. Meanwhile, Super Retail has also suffered from the effect of an external factor, with a challenging economic outlook and poor consumer sales data hurting investor sentiment in the consumer goods and retail sector.
However, both stocks have huge potential to turn their poor performance around. In the case of Super Retail, it looks set to benefit from the reduction in interest rates that has taken place in recent months, with the full impact of a loosening monetary policy unlikely to be felt immediately. As such, Super Retail's bottom line could gain a boost moving forward, with it already offering significant potential over the next year when it is forecast to rise by 18.2%.
Furthermore, Super Retail appears to offer excellent value for money, as evidenced by a price to earnings growth (PEG) ratio of 0.95, which is considerably lower than the ASX's PEG ratio of 1.35. And, with Super Retail yielding 4.2% from a dividend that is set to be covered 1.5 times by profit, it remains a relatively appealing and stable income play, too.
Similarly, Woodside Petroleum has vast potential to turn its share price performance around. That's because it remains a hugely sound financial entity that, in the long run, could benefit from the current weak oil price as its position relative to its peers strengthens. In other words, the oil industry could soon become a case of 'survival of the fittest' and, with a strong balance sheet, cash flow that has increased by 21.8% per annum on a per share basis during the last five years and a vast asset base, Woodside Petroleum may be able to outlast the vast majority of its peers.
This, of course, is excellent news for income investors since, while Woodside Petroleum is expected to cut dividends in the next couple of years, it still has a forward yield of 4.7% which, with interest rates falling, could improve investor sentiment and strengthen its share price performance moving forward.
