At the present time, the future seems to be rather uncertain. After all, the Chinese economy's growth rate is slowing and the Australian economy is experiencing the most challenging period in a number of years.
However, this is the norm for investors, since the future is never certain. There are always a number of events which can quickly change the course of the economy and the stock market, with no individual being able to accurately or consistently predict them. As such, the outlook may be rather 'normal' as opposed to 'uncertain' at the present time.
The same goes for companies: predicting which ones will deliver strong growth is a best-guess exercise. However, some seem to have more potential than others. For example, Telstra Corporation Ltd (ASX: TLS) and Domino's Pizza Enterprises Ltd. (ASX: DMP) could outpace the majority of their peers over the long run.
In Telstra's case, it was able to add 664,000 net new retail mobile phone customers as well as 189,000 net new business customers during financial year 2015. Furthermore, with the company expecting to invest over $5bn in its network in Australia over the next three years, it seems to be positioning itself for further increases in customers over the medium to long term.
In addition, Telstra is also investing in its Wi-Fi network and is expecting to increase the number of hotspots across Australia to over 2 million by 2020. This means that its offering is likely to be relatively competitive and may cause a further increase in customer numbers moving forward. And, alongside a productivity drive which achieved $1bn in savings in the last financial year, Telstra's margins appear to be healthy and, with its strategic growth plan identifying Asia as a major opportunity, the company's bottom line looks set to offer significant growth in the coming years.
Similarly, Domino's is aiming to maximise its online sales in Australia and New Zealand, while in Europe it is focusing on generating operational efficiencies. For example, the rollout of global point of sale and online ordering systems in France is set to be completed, with a new commissary in Paris set to improve both the consistency of the final product and also maximise efficiencies. Meanwhile, in Japan Domino's is aiming to significantly increase the number of stores which in itself should lead to economies of scale and further growth in sales and profitability.
Looking ahead to the next couple of years, Telstra and Domino's are forecast to increase their earnings at an annualised rate of 8.4% and 24.8% respectively. Clearly, both of these growth rates are impressive and, as discussed above, their long term growth potential appears to be sound.
As such, they appear to be well worth their premium valuations relative to the ASX. For example, Telstra has a price to earnings growth (PEG) ratio of 1.9 while Domino's has a PEG ratio of 2.1; both of which are higher than the ASX's PEG ratio of 1.4. And, with both stocks beating the wider index in the last year by 7% (Telstra) and 55% (Domino's), now seems to be the perfect time to buy them both for the long term.
