Sonic Health, AGL and Webjet: Buy, hold or sell?

Investors are searching far and wind for quality companies at reasonable prices. The index of Australia’s top 200 listed companies is up 32% since mid-2012 and 15% since June this year, pushing some companies to unsustainable levels. The trend of the recent AGM or ‘confession’ season was that shareholders would punish companies underperforming on growth. The three companies below have very different growth profiles and share price outlooks.

Please note, these recommendations are the opinion of the author only and do not necessarily reflect the views of Motley Fool analysts.

Buy: Sonic Health Care (ASX: SHL)

Healthcare and pathology services provider Sonic Healthcare has had a successful 2013, increasing revenue and profit while continuing to make smaller acquisitions to steadily grow the business. Sonic, which has operations in Australia (31% of revenue), the US (21%), and throughout Europe, is well placed to service the aging population in many developed countries.

Sonic is a heavyweight in the industry and is well positioned to benefit from Obamacare in the US, and the squeeze on healthcare costs in Europe, which will push smaller operators to losses, driving sales towards Sonic. The company’s share price should be supported by an expected 5% rise in earnings in 2014.

Hold:  AGL Energ y (ASX: AGL)

AGL disappointed investors last month when it announced that its profit for the year would be between $560 million and $610 million, around 10% below what some analysts expected. It pushed the share price down 5.7% at one stage to hit $14.83 from $15.68, before recovering well to be trading at around $15.25 early this week. The announcement means that AGL should post a similar result to last year, which some analysts point out isn’t such a bad effort considering intense competition in the market this year and lower energy demand during the mild east-coast winter.

Most analysts have a ‘hold’ or ‘neutral’ view on AGL, however, it holds Australia’s best collection of gas and electricity assets, giving it a significant competitive advantage over its peers. AGL is a great long-term hold but is not a screaming buy at the current price.

Sell: Webjet (ASX: WEB)

Webjet’s share price has fallen over 40% since late July after the company announced disappointing full-year results and then provided a somber outlook during the AGM in November. Webjet announced that earnings would be essentially flat on 2012 at $21.5 million, when previous estimates had been for a 15-20% increase and well below some broker estimates of $26.5 million.

The company blamed a slow rebound in consumer confidence for no growth in the Australian business and larger than expected costs integrating the recently purchased Zuji website as a drag on profit. There are many uncertainties in the Webjet business and if there is more bad news announced during the interim results in February, investors may suffer further losses.

Foolish takeaway

The companies above are prime examples that investors will treat companies delivering earnings and profit growth favorably. Conversely, companies that disappoint investors with lower earnings or lost market share are likely to get punished now and underperform in the future.

But isn't dividend growth important too?

Big dividends have also been a driver for share price growth over the past 18 months. If you're interested in stocks paying a big, reliable dividend, you should 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."

Motley Fool contributor Andrew Mudie does not own share in any of the companies mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.