This is a stock pickers’ market

The continual grind higher of the market means value is few and far between, so careful stock picking is more important than ever.

a woman

With the August reporting season now behind us, investors can take a moment to reflect not just on how the companies they follow performed last financial year but more important, what guidance management provided on the outlook for the year ahead.

While there were some companies such as Flight Centre (ASX: FLT) who appear to have a good grasp of the outlook for their earnings – which is for growth – other companies such as Seven Group (ASX: SVW) could clearly see that earnings will decline in financial year 2014. However what was particularly glaring and is interesting to consider is just how many outlook statements completely lacked any form of guidance whatsoever.

Although the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is only up 0.77% in the last 30 days it doesn’t really tell the full story, with a number of widely followed stocks such as Ausdrill (ASX: ASL) rallying by over 50%. Market participants appear to have been clamouring to buy into any stock they feel might have been ‘over sold’ — particularly within the mining services space — presumably worried they are missing out on a rally of sorts. For example, after its superb profit result Flight Centre’s share price has been driven nearly 7% higher, however Seven Group’s share price, even after informing the market of its poor outlook, has been driven over 11% higher!

Foolish takeaway

The list of stocks making new 52-week highs seems to be increasing by the day, which given the over-all lacklustre picture for earnings growth would suggest investors (and speculators) are still prepared to pay ever higher multiples for stocks.

Given the dull outlook for earnings growth investors should be asking themselves what is driving stocks higher. Many companies look very fully valued or overvalued, which means this market is very much a stock pickers’ market. As much as ever, Warren Buffett’s timely advice that “price is what you pay but value is what you get” should be adhered to.

Don’t want to get caught paying too much for stocks? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »