I'm a strong believer in the notion that investors who buy shares that are reasonably priced and have the ability to grow earnings at a faster rate than the broader market will achieve market beating returns.
It sounds like a pretty simple strategy but it has proven to be highly effective over the long term.
With that in mind, here are four shares that I think investors should consider when thinking about how to beat the broader market averages:
Sirtex Medical Limited (ASX: SRX) – Despite a recent dip in sales growth, Sirtex still remains one of the fastest growing companies on the ASX and has the potential for huge gains if clinical trials go to plan. Only 2% of Sirtex's addressable market has been penetrated at this stage and there is hope its novel liver cancer treatment could be expanded into new areas such as kidney cancer. Investors should remember that Sirtex's share price can be extraordinarily volatile at times and this makes it suitable only for investors with a higher than average risk appetite.
Retail Food Group Limited (ASX: RFG) – Retail Food Group shares have been on an upward trend over the past few months but I think there could be further gains to come. The company owns brands such as Gloria Jeans, Donut King and Crust Pizza and is also one of Australia's largest coffee roasters and wholesalers. Earnings growth has really ramped up over recent years thanks to acquisitions and international expansion and the company is likely to deliver growth of around 20% when the company reports its FY16 results later this month. The shares are trading on a price-to-earnings (P/E) ratio of 14.5 which seems like good value when you consider this is a significant discount to the broader market.
Healthscope Ltd (ASX: HSO) – The healthcare sector has unsurprisingly become very popular amongst investors on the basis that the demand for healthcare services is expected to grow strongly over the next decade or so. This has seen hospital operators like Healthscope and Ramsay Health Care Limited (ASX: RHC) trade on relatively expensive valuations. Despite this, I think there could be further long term upside for Healthscope with the company investing heavily in expanding its hospital footprint to meet future demand. On a relative basis, it also trades at a discount to Ramsay Health Care, although this is unsurprising considering Ramsay Health Care's superior track record.
Magellan Financial Group Ltd (ASX: MFG) – Investors who believe that the global economy isn't going to fall off a cliff and that equity markets will continue to perform strongly, should consider adding Magellan to their portfolio. The international fund manager has proven to be a wonderful performer, both as a stock, and as a fund manager that has the ability to beat the market averages. Magellan also provides investors with leveraged exposure to global equity markets without the need to invest directly overseas. The shares have performed quite strongly over the past three weeks, but any move back towards the $20 level would be a buying opportunity in my opinion.