The performance of the ASX over the last year has been disappointing, but is arguably much better than expected. Certainly, a fall of 2% means that many Aussie investors will have a capital loss on their portfolios for the last 12 months, but given the challenges faced in that period it seems to be a relatively strong result.
For example, Australia's key trading partner China has endured an economic slowdown and the prices of commodities have tumbled. This has put pressure on the domestic economy which, alongside weak consumer sentiment, concerns about the future growth rate of GDP and higher than desired unemployment levels, has left many investors feeling rather pessimistic about the short to medium-term prospects for the ASX.
Looking ahead, more disappointment could be yet to come, but the present time provides an opportunity to buy high quality stocks at what could prove to be at appealing prices for the long term. For example, diversified financial company Suncorp Group Ltd (ASX: SUN) has seen its share price fall by 7% in the last year and it now trades on a price to earnings (P/E) ratio of 14.5 versus 15.8 for the ASX.
This valuation appears to be rather low when Suncorp's earnings growth prospects are factored in. The company is expected to increase its bottom line by 16% this year and by a further 5% next year, with its cost optimisation programme set to have a positive impact on margins as Suncorp seeks to make savings of $170m over the next three years.
Furthermore, with Suncorp holding $570m in common equity tier 1 capital above its operating targets, it appears to be well-positioned to overcome any economic storm which could occur in 2016. And, with a yield of 6%, it remains a relatively appealing income option with its yield being 150 basis points higher than that of the ASX.
Meanwhile, tunnel and toll road operator Transurban Group (ASX: TCL) offers a combination of growth and defensive prospects which should help to continue its share price gains of 29% made in the last year. For example, Transurban is forecast to increase its earnings at an annualised rate of 74% during the next two years. This puts it on a price to earnings growth (PEG) ratio of just 0.67, which is less than half the ASX's PEG ratio of 1.37.
Transurban also offers relatively defensive prospects, with it having a beta of 0.89 and a track record of having increased net profit at an annualised rate of 15.5% during the last 10 years. This, plus the prospect of positive currency gains from its US operations and the scope for new contract wins such as the principle agreement for an extension of the 95 Express Lanes in Virginia, indicate that now is an opportune moment to buy a slice of the business.
Similarly, rail freight operator Aurizon Holdings Ltd (ASX: AZJ) has also been a strong performer in the last year, with its shares rising by 19%. That's despite concerns regarding the impact of a declining mining sector on Aurizon's earnings.
Looking ahead, it is forecast to increase its bottom line by over 7% per annum during the next two years. A key reason for this is the productivity improvements which Aurizon is undertaking. As highlighted in its recent AGM statement, Aurizon has been able to deliver cumulative transformation benefits of $252m in the two years to June 2015. Furthermore, Aurizon is committed to generating productivity and cost savings of between $310m and $380m during the next three financial years as it seeks to achieve an operating ratio of 70% in financial year 2018. This is expected to aid a growth in dividends per share of 9% per annum during the next two years, which puts Aurizon on a forward yield of 5.1%.
