The pull-back in the market over recent weeks presents us with an opportunity, as does the upcoming reporting season. It often sets the tone for the remainder of the year, according to Lincoln Indicator's Chief Executive Officer, Elio D'Amato.
As a leading consultancy firm with a 30-year history, Lincoln assists corporate and financial institutions to assess credit and financial risk. It also manages a number of investment funds. Lincoln prefers certain stocks within the health care, consumer discretionary and parts of the resources index. It selected these potential bargain stocks because they are anticipated to exceed consensus expectations during the February profit releases.
Here are five ideas for your portfolio.
1. Slater & Gordon Limited (ASX: SGH)
Lincoln rates law firm Slater & Gordon as one of its "star stocks". Its recent acquisitions in the United Kingdom should be a catalyst for further growth.
Recently the company was admitted into the S&P/ASX 200 (ASX: XJO) (^AXJO), which generally leads to investment from those fund managers whose charters require investments to come from the top 200.
2. Ardent Leisure (ASX: AAD)
Ardent Leisure is an operator of leisure and entertainment assets across Australia, New Zealand and the United States. It operates Dreamworld, Whitewater World, Skypoint Climb, marinas, bowling centres and fitness centres. It also operates the Main Event family entertainment centres in the United States.
The group's theme park arm is expected to be a beneficiary of the Queensland government's latest tourism campaign, especially in the second half of 2014. Theme parks account for 22% of the company's' total revenue.
3. Sirtex Medical (ASX: SRX)
Biotech company Sirtex Medical was selected for its promising product developments. The depreciating Aussie dollar will be an added boost as the majority of earnings derive from overseas. However, Lincoln does warn that weak European conditions may restrict its offshore growth.
4. RCG Corporation (ASX: RCG)
RCG Corporation is the operator of The Athlete's Foot shoe store chain. Sales are expected to receive a boost from its two latest brand acquisitions: the wholesale and distribution businesses of the shoe brand Saucony, which operates in the Australian and New Zealand markets, and Podium Sports, which operates athletic footwear and apparel clearance stores in outlet malls and DFOs. The sales boost should be amplified by additional planned store rollouts.
5. Sandfire Resources (ASX: SFR)
Sandfire Resources is a mining company which explores and develops the DeGrussa copper-gold project in Western Australia, as well as a portfolio of base metal, iron ore, manganese and gold projects. The planned ramp up of production in the second half and a potential rise in copper prices are expected to result in outperformance.
Oz Minerals (ASX: OZL), Posco and National Bank Australia (ASX: NAB) feature as major shareholders, with the former having a 19% holding that often generates takeover speculation.
Foolish takeaway
Some caution should be applied when predicting upcoming profit releases. Generally, prior news has already been factored into share valuations. A profit release may be outstanding and at the same time, the stock price subsequently falls. This is because it has fallen short of consensus broker estimates.
However, medium- to long-term investors should be more than comfortable with four of the five stocks. In my opinion, investors should hold off on Sandfire Resources, as recent turmoil in world markets is not conducive to investing in mining stocks.
