Keen share market followers will be all-to-aware that the recent past hasn't been a great period for the ASX. Whether that period is one, five or ten years the results are lacklustre with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) falling around 5% in the last 12 months; gaining about 10% over the past five years and increasing by just 17% over the last decade.
The capital gains of the index have certainly been meagre at best, which has made the contribution of dividends to overall investor returns more important than ever.
With the index in negative territory over the past year, it's not surprising that many large cap (capitalisation) stocks (or blue chips as they are sometimes referred to) are underwater too.
In some cases, there is a clear reason for the poor share price performance and arguably the price falls are justified. In other cases, they're perhaps not. In all cases, however, what should matter to investors is whether the stocks appear to be undervalued or not.
Here are three industry-leading stocks which are all trading near their respective 52-week lows and have all significantly underperformed the return of the index over the past 12 months. Despite the significant price falls, however, only one of them is arguably in true value territory now…
- Lend Lease Group (ASX: LLC) – share price is down to the $12 level yet earnings per share (EPS) are forecast to remain above 115 cents per share (cps) over the next two years. This implies a price-to-earnings (PE) ratio of around 10.5 times. Considering the global pipeline of growth opportunities, including significant exposure to retirement villages which will benefit from aging populations, this multiple is arguably too low.
- Primary Health Care Limited (ASX: PRY) – share price is below $3.80 yet a consistent level of EPS of around 26 cps is forecast over the next two years. Given the group's operations of pathology and medical services should not only provide a reliable stream of revenues but also steady growth the PE multiple of 14.5 times is probably about right.
- National Australia Bank Ltd. (ASX: NAB) – share price trading around the $28 level with EPS forecast to grow over the next two years. Assuming 250 cps is maintainable, this implies a PE multiple of 11 times which could arguably offer value, however it could also be considered fair value considering the interest rate cycle and long-term averages.
