While it is always nice to pick up a stock at a very low premium or perhaps when investors have temporarily turned their backs on its prospects, investors will sometimes have to pay up for good companies with strong potential. It’s a factor that even investing great Warren Buffett has come to realise.
That does not mean you should buy companies when they’re over overpriced. Take for example Australia’s major banks. Each rallied strongly in 2013, but stand little chance of delivering market-beating returns in the long run despite their attractive dividend yields.
There are some companies which boast enormous potential that others in the market have already caught wind of, sending share prices up. The Australian Financial Review unveiled five stocks that rallied strongly in 2013, but could continue rampaging in the year to come:
Nearmap Ltd (ASX: NEA): Nearmap provides high-resolution overhead photos of Australian towns and cities, covering 85% of Australia’s population, its products are used by thousands of companies. Due to the frequency at which it updates its maps, many users find it even more useful than Google’s (NASDAQ: GOOG), Google Maps (with which it recently signed a licence agreement). While its shares rallied 859% in 2013, investors should be focused on the company’s long-term potential to continue expanding and gathering new customers.
Admedus (ASX: AHZ): (Formerly Allied Healthcare Group) More and more surgeons in Australia and overseas are endorsing Admedus’ CardioCel product, which has shown to offer a number of benefits in the repair and reconstruction of heart defects. The diversified healthcare group is expanding internationally, with the company reporting that its first sales had commenced in Europe in November. Despite having gained over 700% in 2013, the company’s shares are still trading for just 16c, giving it a market capitalisation of $201 million and strong momentum going into 2014.
Atrum Coal NL (ASX: ATU): While the materials sector declined last year, Atrum soared more than 600% – and its cornerstone British Columbia-based Groundhog anthracite project hasn’t even commenced production yet! It is said that the company has the largest deposit of anthracite in the world. This is even more valuable than coking coal, and when meaningful production begins in 2015-16, analysts are expecting a net profit of around $104 million. While the stock climbed over 600% in 2013, Shaw Stockbroking has a 12-month price target of $2.25 which still represents a 73% upside for investors.
Select Harvests Limited (ASX: SHV): The almond producer is set to benefit from a number of factors. Firstly, the world’s largest producing region, California, is entering its third year of drought which has seen the price of almonds rise. Combined with significant cost-cutting and an increase in production, Select Harvests is in a very good position to boost profits in 2014 and beyond. At $5.83 per share and a P/E ratio of 13.6, shares are looking attractive despite their 320% rally in 2013.
FSA Group Ltd (ASX: FSA): FSA Group is a provider of debt solutions and direct lending services to both Australian consumers and businesses. It is one of the largest providers of personal solvency agreements with more than 1500 clients. Although its shares climbed 178% last year, the company believes that its profit for the six months to December 31 2013, would be up between 30%-38% compared to the previous corresponding period, and analysts believe the gains will continue well beyond. At $1.30 per share, it’s not too late for investors to buy in.
Although each of the above companies have already climbed strongly over the last year, investors shouldn’t wait for prices to drop as that may never happen. Interim earnings season is fast approaching and any of the above companies could receive a welcome-boost.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.