3 stocks ready for growth

These companies will expand with the economic recovery.

Stocks hitting new yearly highs are exciting to look at, especially when you already own some of them, but the question that remains is “how much farther will they go up from here?” Is it just froth and market hype that has expanded the share price, or is this the foundation of the next upward stage of the company’s prospects?

You still have to buy quality stocks; you can’t get around that rule, or your portfolio will pay for it when the other buyers have sold, and leave you holding something with little staying power.

If the economy is getting better, and the shade of the GFC is pulling back, then more people will be working, buying and moving things or even themselves. Using that as a theme, here are three companies that have made new yearly highs since last week.

Import/export logistics service provider Qube Holdings (ASX: QUB) manages freight containers and vehicles going in and out of its Botany Bay facilities. It is planning to develop even larger port facilities, and is attempting to play an important role in the Moorebank terminal development adjacent to their present site.

Future economic expansion means more goods to be shipped, and with plans to increase rail access to the ports by government, the company can work to consolidate the stevedoring business in Sydney.

Air travel will also increase in a growing economy, so Sydney Airport (ASX: SYD) will have more business, being the only major international airport in the city. This current monopoly of air transport allows the company to set the price of access for airlines using facilities, and the number of growing future fliers will keep the business flowing in.

Currently about $4 a share, it has a 41 price-to-earnings ratio, so unless it can grow its earnings at a similarly amazing rate, it has too much of a premium to pay right now. Follow the story, and wait for a better price.

Skilled Group (ASX: SKE), which provides professional and trades labour as well as project management and maintenance, should see more business as more companies want to expand services and increase work staff. It has steadily increased earnings per share over the past four years.

It does have a low net profit margin, but with the economy expected to grow, an increasing volume of work would maintain earnings. Its gross gearing is low, and return on equity is now 12.4%, so it’s not overladen with debt and is putting is money to good use.

Foolish takeaway

The new share price high is only a snapshot in time. You have to look back at what got it to that point, and what more can be expected of it. Market expectations can drive a stock higher than what it may deserve for what it’s doing, so you still have to apply the same metrics like PE ratio and check earnings growth and company returns.

Don’t just buy a stock, buy the company’s story, and check the story along the way to make sure that the reasons you bought the story are still relevant. If the story is getting better, then it may deserve a larger position in your portfolio.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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