National Grid
Over the next few months, there is a good chance that the FTSE 100 will become increasingly volatile. That’s because the UK General Election is likely to weigh on investors’ minds and, during such challenging periods, low beta stocks such as National Grid (LSE: NG) (NYSE: NGG.US) can be a very useful ally. That’s because they offer reduced volatility in terms of their share price movements.
For example, National Grid has a beta of just 0.7, which means that for every 1% movement in the wider index, National Grid’s share price should change by just 0.7%. So, over the long run, it should help to stabilise a portfolio and, with it trading on a price to earnings (P/E) ratio of 14.9, it offers considerable upside while the FTSE 100 has a rating of around 16.
ITV
One of the difficulties that many investors experience after a major recession such as the credit crunch is accepting higher levels of risk. In other words, the pain of the recession remains with them for many years and, in the meantime, stocks such as ITV (LSE: ITV) deliver gains of 330% in just five years.
Of course, ITV is very cyclical and, in the long run, will undoubtedly experience a challenging period once more. However, it has an excellent management team that is improving the appeal of the company’s offering, which should bode well for its long term performance. And, with ITV having a P/E ratio of 16.4, it still offers upside in the long run when its growth potential is taken into account.
Burberry
Although news of a Chinese stimulus package may cause investor sentiment in Asia-focused stocks such as Burberry (LSE: BRBY) to lift somewhat, the real potential is with regards to the long run. So, while the transition towards a consumer-focused economy will take time and is likely to disappoint at times, the wealth of individuals and the rise of the middle class in Asia will happen in the decades ahead of us.
As such, buying stocks with a strong foothold in emerging markets makes sense. And, one such company is Burberry, which is highly dependent upon China and the rest of the emerging world for its sales. As a result, and even though it has a rather rich P/E ratio of 20.6, it remains a great long term buy.
Whitbread
On the face of it, Whitbread (LSE: WTB) seems to be hugely overpriced at the present time. That’s because it trades on a P/E ratio of 21.9 – far higher than the FTSE 100’s P/E ratio of 16. And, with its Costa Coffee chain now having expanded throughout the UK and being unlikely to maintain such a strong growth rate in perpetuity, it could be argued that its future is somewhat uncertain.
However, Whitbread has the scope to expand outside of the UK with its coffee shops, and is also diversifying into the no-frills, budget city hotel space via its ‘hub’ offering. Together, these two opportunities should provide the company with a relatively consistent level of growth and, looking at the next two years, Whitbread is forecast to increase its bottom line by 15% and 14% respectively. This puts it on a price to earnings growth (PEG) ratio of 1.4, which indicates that it offers growth at a very reasonable price.
