While investing in high quality companies is a great way to improve your chances of investment success, timing is also important, too. And now could be a great time to buy a slice of Aviva (LSE: AV), since the company is embarking on a merger with Friends Life that has the potential to deliver synergies, cost savings and improved profitability.
A major force
For example, Aviva is forecast to grow its bottom line by around 12% next year and, over the medium to long term, is likely to benefit from being a major force in the life insurance market. This should allow it to cross-sell other products and also enjoy relatively high margins compared to its sector peers.
With Aviva trading on a price to earnings (P/E) ratio of just 10.8, there is tremendous scope for an upward re-rating as its merger begins to bear fruit. Furthermore, Aviva’s financial standing and cash flow remain sound following the deal, which should give investors in the company confidence in its long term prospects
Excellent potential
Clearly, buying an emerging market-focused stock at the present time may not appear to be a sound idea. After all, China is in the midst of a currency devaluation as it seeks to improve its declining growth rate. However, this could be the perfect time to buy Diageo (LSE: DGE), since its shares are trading at a very attractive price and have excellent long term growth potential.
For example, Diageo has a P/E ratio of 19.3 which, for a global consumer stock, represents good value. In fact, given Diageo’s past profitability, product strength and growth prospects, a rating expansion seems to be on the cards.
And, while China’s growth rate is slowing, it is transitioning towards being a consumer-led economy and, for consumer stocks such as Diageo, this is great news as it is likely to mean more sales of its goods. Therefore, for long term investors, a weak short term outlook for the world’s second largest economy presents a favourable opportunity to buy.
Bright future
Meanwhile, publisher and marketing company, St Ives (LSE: SIV), also offers a bright future. Its earnings are forecast to rise by 4% this year and by a further 7% next year and, despite this, it trades on an exceptionally low P/E ratio. In fact St Ives has a rating of just 9.6 despite its shares having soared by more than 140% in the last five years.
In addition, St Ives is set to benefit from the recent acquisition of Fripp Sanderson, with the purchase enhancing St Ives’ range of specialist, niche consultancy services. And, with St Ives currently yielding a very impressive 4.1% from a dividend that is covered 2.5 times by profit, it remains a top income play, too.
Too late
However, the time to buy a slice of property company Grainger (LSE: GRI) may have passed. That’s because, while its results show that the company’s performance is very strong, its share price rise of 27% since the turn of the year means that its shares are now relatively overpriced. For example, they trade on a P/E ratio of 29.7, which indicates that they could come under pressure in the medium term.
Certainly, Grainger is set to benefit from the improved outlook for the UK economy. But, with such a high rating, even growth forecasts of 12% for next year do not appear to merit such a high price. As a result, the company may be right, but the timing appears to be somewhat too late.
