Most Aussie investors will understandably be feeling downbeat at the present time. That's because the ASX has risen by just 11% in the last five years and, looking ahead, there is a realistic chance that the wider economy will experience a recession.
However, there is still scope to make money from shares, with the likes of biotech company CSL Limited (ASX: CSL) and financial services provider Suncorp Group Ltd (ASX: SUN), both having considerable total return potential.
In the case of CSL, it benefits from being a relatively defensive stock in terms of being less dependent upon the wider economy for its sales and profitability. While this does not remove the risk of profit falls and profit warnings (as was seen earlier this year when the company downgraded its guidance), it does mean that a struggling Aussie economy will have less of an impact on the company's financial performance than for many of its index peers.
In fact, CSL relies on non-domestic markets for most of its revenue and, as such, the decision by the RBA to adopt an increasingly loose monetary policy is likely to provide a boost to CSL's earnings as the Aussie dollar weakens against the US dollar. CSL's bottom line is forecast to rise by almost 12% per annum during the next two years and, with Novartis' influenza vaccine business appearing to be a sound acquisition, its long-term future seems to be very sound. Therefore, CSL looks set to continue the run which has seen its share price soar by 178% in the last five years.
Similarly, Suncorp offers major total return potential as a result of its refreshed strategy. For example, it is investing $75m in an attempt to improve its operating systems and deliver cost savings of up to $170m over the next three years. This should help Suncorp to reach its target return on equity of 10%, with its vertical integration strategy within the general insurance division and new sales programme within the life insurance division set to produce improved returns.
Furthermore, Suncorp is attempting to make use of its diversified financial products by taking advantage of cross-selling. To this end, it is adopting improved business intelligence methods which should be able to improve sales to existing customers, thereby contributing to its forecast growth in earnings of 21% in total over the next two financial years. Such a strong rate of growth, while impressive, is not a major surprise since Suncorp has posted annualised returns of 6.3% during the last five years, thereby giving its investors' confidence in its long-term growth potential.
Despite this, Suncorp trades on a price to book value (P/B) ratio of just 1.2, which is equal to that of the wider index and far lower than the wider insurance sector's P/B ratio of 2.1. As such, there is upward rerating potential due to the previously mentioned catalysts which have the scope to reverse the company's 11% share price fall of the last year.
