The performance of the ASX in the last 10 years has been somewhat surprising. That's because it has failed to reach the highs that were posted prior to the financial crisis, while other indices across the globe, for example the US and UK, have reached higher highs. Instead, the ASX remains around 1,380 points (or just over 20%) beneath its high of 6,748 from 2007.
As a result, stocks that have the capacity to beat the ASX over a prolonged period could be very worthy additions to Foolish portfolios. Two stocks which have achieved just that in the last five years are diversified financial company, Suncorp Group Ltd (ASX: SUN), and toll road and tunnel operator, Transurban Group (ASX: TCL). Their share prices have soared by 67% and 106% respectively since August 2010 and, looking ahead, further outperformance of the ASX could be on the cards.
A key reason for that is the two companies' income potential. At a time when interest rates are low and set to move even lower, Suncorp's yield of 6.1% and Transurban's yield of 4.1% hold huge appeal. Furthermore, they both have scope to grow at a pace that is considerably ahead of the current inflation rate, with Suncorp's dividend coverage ratio due to reach 1.2 in the next financial year and Transurban being expected to raise dividends per share at an annualised rate of 9.5% during the next two years.
In addition, both stocks offer good value for money when compared to the ASX. For example, Suncorp is expected to increase its earnings by around 15.5% in the current financial year and, despite this, it trades on a price to earnings (P/E) ratio of 15, which is lower than the ASX's P/E ratio of 15.3. And, when Suncorp's rating and growth prospects are combined, it equates to a price to earnings growth (PEG) ratio of around 1, which is far more appealing than the ASX's PEG ratio of 1.43.
Similarly, Transurban may have a P/E ratio of 67, but it is expected to increase its bottom line at an annualised rate of over 100% during the next two years. This puts it on a PEG ratio of just 0.66, which indicates that despite its shares having soared by 24% in the last year, there is considerable upside potential ahead.
However, where Suncorp and Transurban have even greater appeal over the ASX is with regard to their stability. While the ASX remains relatively volatile and is expected to continue to be so during the remainder of 2015 and beyond, Suncorp and Transurban's betas of 0.89 indicate that they should offer a less volatile shareholder experience. And, with their business models being strong, stable and highly proven, it seems likely that the outperformance they have delivered in recent years versus the ASX will continue over the medium term.
