With the ASX slumping by over 8% in the last year, there may seem to be little to cheer about in beating it by a few per cent. After all, that would still equate to a loss, with doing nothing being a more profitable strategy. However, over the course of history, the stock market has proven to be a superb place to invest for the long term. And, if investors can find stocks that beat the index even by a fairly small amount, then it can mean even better returns that are worth chasing.
One stock that has easily beaten the ASX in the last year is private hospital operator, Ramsay Health Care Limited (ASX: RHC). Its shares have soared by 16%, which equates to an almost 25% outperformance of the wider index. A key reason for this is the company's lack of cyclicality, which means that its profitability tends to remain strong even during the most difficult economic circumstances. Evidence of this can be seen in Ramsay's track record of profit growth, with its bottom line rising at an annualised rate of 16.9% during the last ten years.
Furthermore, investors have also been attracted to Ramsay's geographic diversity. With there being concerns that Australia could enter a recession, having exposure to non-domestic markets holds major appeal. And, while Ramsay is the biggest private hospital operator in Australia, it has a significant presence in France and a lucrative long-term exposure to China. Although its shares trade on a price to earnings (P/E) ratio of 31.5 (versus 14.8 for the ASX), it looks set to keep beating the wider index.
Unlike Ramsay, shares in Super Retail Group Ltd (ASX: SUL) have beaten the ASX by a much more modest amount, with them outperforming it by just 0.5% in the last year. This, though, is not such a bad result, since sentiment in Super Retail has been hurt by disappointing consumer confidence figures which have put the company's share price under pressure.
Still, Super Retail is expected to increase its bottom line by over 15% per annum during the next two years and, with the RBA's interest rate cuts from earlier in the year yet to have an impact on the economy (due to time lags), the company could gain a further boost moving forward. Furthermore, additional cuts to interest rates seem to be likely, which makes Super Retail's price to earnings growth (PEG) ratio of 0.99 (versus 1.39 for the ASX) seem enticing.
Similarly, Suncorp Group Ltd's (ASX: SUN) price to book (P/B) ratio of 1.19 also holds appeal while the ASX has a P/B ratio of 1.23. Certainly, it may only be a narrow discount to the index's valuation, but Suncorp has index-beating financial performance pencilled in for the next couple of years.
For example, it is expected to deliver an annualised rise in net profit of 10% during the next two financial years. And, as a result, dividends per share are expected to increase by 8.5% per annum during the same time period, which puts the company's shares on a forward dividend yield of 7.2%. That's higher than the ASX's yield of 4.8% and, crucially, Suncorp's dividends are due to be covered 1.2 times by profit in financial year 2017, which indicates that they are sustainable. So, while its shares have fallen by 15% in the last year, ASX-beating performance seems to lie ahead for Suncorp.
