Even with the advance of the S&P ASX All Ordinaries Index (ASX: ^XAO) in the past two years, it’s still under 5,500 and quite a way from the 2007 peak. Knowing where the bright spots of growth are can help your portfolio’s returns as the stock market continues on.
Over the 12 months to December, Australian GDP grew by 2.8% seasonally adjusted, and the three industries that contributed the most to that figure were mining, financial services and healthcare according to the Australian Bureau of Statistics (ABS). Following that trend, these companies can give your portfolio the next leg up.
Mining and resources
Until a definite bottom in the mining slowdown is seen, stick with the majors because they are the most cost competitive, have deeper pockets for running costs, and can produce the most to keep earnings growing.
That’s why BHP Billiton Limited (ASX: BHP) is one of the easiest choices to get earnings power, growth and diversification in products. Iron ore is making big money now, and the big miner also gets its earnings through oil and gas production, with oil still up in price.
Additionally, it has invested in the resource rich US shale oil regions, with the potential for adding unconventional oil and gas development to its existing energy resources.
Profits in the first half of 2014 have doubled, and the momentum is there to keep on going.
You could go with the Big Four banks since they control the majority of residential loans as the housing market is taking off, but to take advantage of a wider stock market and world economic recovery, I would look at investment managers.
Magellan Financial Group Ltd (ASX: MFG) specialises in international equities and can tap into regions like the stronger US and improving European markets. It has about $21 billion in funds under management, up from $14.7 billion at the end of June 2013.
Its share price had a phenomenal run up last year, but investors should focus on the long-term growth potential and invest appropriately.
Sonic Healthcare Limited (ASX: SHL) provides pathology and radiology services, which are needed by many patients, so the demand is strong. It also operates in the US and Europe benefiting from their large populations.
In Australia it is the market leader with 41.1% of the pathology services industry, and in the first half of FY 2014 it grew its underlying net profit by 16%. The need for healthcare among ageing populations means more customers for the company now and in the future.
Whatever the current trend is for business, the search for quality companies is still important because they give us the best chance to grow our portfolios over time. They will have ups-and-downs, but generally offer the steadiest growth. That’s the ingredient for investment success.
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