2015 has been a tough year for Aussie investors, with the ASX lacking direction and causing a significant amount of worry among its participants. In fact, since the turn of the year, the index has been as high as 5,982 points and as low as 5,299, which is a range of 683 points and represents 12.6% of the ASX's value at the start of the year. As such, it is clear that this year has been a relatively volatile one for the index.
Looking ahead, above average levels of volatility could be set to stay. That's because the RBA seems intent on the further loosening of monetary policy and this could have a positive impact on the index's value, as well as investor sentiment. However, uncertainty surrounding the prospects for the Aussie economy, unemployment levels and, perhaps most importantly, the growth rate in China, could act as a brake on share price rises. Furthermore, commodity price falls may continue and, as a result of the mix of positive and negative factors that may continue to be present, the ASX may experience relatively wide swings in its level in the months ahead.
As a result of this, defensive stocks with low betas could prove to be a sound move. Two prime examples are telco, Telstra Corporation Ltd (ASX: TLS), and rail freight operator, Aurizon Holdings Ltd (ASX:AZJ). They have betas of just 0.5 and 0.9 respectively and, as such, their share prices should move by a lower percentage than the ASX, thereby providing a degree of stability during an uncertain period.
Furthermore, Telstra recently announced a hike in its dividend, with it increasing by 3.3% so that the company now yields a fully franked 5%. This should help to maintain investor interest in the stock, especially as interest rates are set to move lower. Additionally, Telstra has a relatively reliable earnings outlook and its financial performance is likely to be stable, with it occupying a dominant position in the Aussie telecoms market.
However, Telstra also has ambitious growth plans, too. It is aiming to generate at least a third of its revenue from outside of the domestic economy within five years and, with it diversifying into new areas such as e-healthcare, its earnings profile could broaden further. That's not to say, though, that its earnings prospects are disappointing. Telstra is forecast to increase earnings at an annualised rate of 8.1% during the next two years, which indicates that it is a strong growth prospect.
Meanwhile, Aurizon also has upbeat income prospects. It may yield a rather modest 3.6% at the present time, but with dividends per share forecast to increase by over 15% per annum during the next two years, its potential as an income stock seems to be strong. And, while the level of activity within the domestic economy will impact on demand for its services (as well as margins), Aurizon is expected to deliver earnings growth of 12% in the current year. This puts it on a price to earnings growth (PEG) ratio of 1.5, which indicates that its shares could rise further after posting capital gains of 10% since the turn of the year.
Aurizon's mix of growth, value and stability could, therefore, prove to be a winning combination – especially if the ASX continues to be relatively volatile over the medium term.
