4 discounted stocks that should keep rising

In my opinion, all four of these stocks would sit comfortably in a long-term portfolio.

a woman

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In light of recent spectacular share price gains resulting from the just completed profit reporting season, some updated market forecasts are looking more plausible. For example, after the release of profit results for REA Group Limited, broker BA-Merrill Lynch forecast the stock would reach $100 in the next two years. It is currently trading at $51.03, having already risen 23% since reporting in February.

Soon after releasing results above market consensus forecasts, I recommended TFS Corporation (ASX: TFC), Domino's Pizza Enterprises (ASX: DMP), Breville Group Ltd (ASX: BRG) and Ardent Leisure (ASX: AAD). Over the period from the day prior to the profit releases to 7 March 2014, the share prices have risen 51.3%, 26.9%, 23.1% and 18.3% respectively.   

However, despite spectacular short-term gains, we are first and foremost long-term investors. Just as interest rates trend in one direction, quality stocks tend to have not just one profit upgrade, but a series of them. In what becomes a virtuous circle, those profit upgrades are often accompanied by further positive announcements to the market. Sure, you may have missed the initial jump in price, but over the long term it is inconsequential.

To illustrate this point, I went back to the August 2013 reporting season to see if the same stocks exceeded market consensus. All did and share prices continued outperforming .Two months hence, on 31 October, the same stocks had appreciated by 65%, 33%, 10% and 27% respectively.

Here are the multiple reasons for the four share price rises.

1. TFS Corporation

TFS Corporation is a Western Australian company that has become the world's largest owner and manager of sustainable Indian sandalwood plantations. Apart from an impressive profit release, the company announced a new long-term exclusive supply agreement with a global pharmaceutical company. Sandalwood can now be used for dermatology treatment in addition to being a key ingredient for perfume.

2. Domino's Pizza Enterprises

Apart from significantly exceeding consensus forecasts, Domino's reporting close to 60% of total sales sourced from online in Australia and over 50% of those sales come from mobile devices. This is why Domino's is often referred to as a technology stock and enabled Domino's to acquire 75% of Domino's Japan last August and immediately transform operations. It has now surpassed Pizza Hut in total network sales to become number two in the Japanese market.

3. Breville Group Ltd

Breville Group, the developer of kitchen appliances to the consumer products industry, issued profit guidance that was 5% ahead of consensus forecasts. Earnings and revenue growth was strong across key markets in the United Kingdom, New Zealand, Hong Kong and North America.

Also, North America posted sales increases of 30% this period and has tremendous capacity to expand its small market share. Finally, a future capital return to shareholders may be in prospect, given its existing net cash position of $9 million is expected to grow to around $45 million by 30 June 2014.

4. Ardent Leisure

Despite a solid share price run in 2013, Ardent Leisure caught the market by surprise with strong earnings momentum, causing several upgrades to earnings. The standout performance was the Main Event family entertainment centres, which provides exposure to a U.S. recovery and translation benefits from a lower Aussie dollar. The Gold Coast theme parks are also expected to benefit from increasing local and international visitors.

Foolish takeaway

The above results clearly show that a virtuous circle is in play for these large and small-cap stocks. This causes consensus forecasts to be exceeded on an ongoing basis. The above-mentioned two-month share price performance figures after the prior reporting season clearly show that it is not too late to invest in stocks that reported results last month.

In my opinion, all four of these stocks would sit comfortably in a long-term portfolio.

Motley Fool contributor Mark Woodruff owns shares in TFS Corporation and Domino’s Pizza Enterprises.

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