Back in 18th-century Europe, Sir Isaac Newton famously lost a fortune after shares he bought in the South Sea Company crashed after a bubble like rise.
Newton should have known better than anyone that what goes up must come down, but failed to spot this eventuality in the South Sea Company bubble and lost a fortune in the process. Reportedly going on to complain: “I can calculate the movement of the stars, but not the madness of men”.
As investors we might not have the intellectual genius to calculate gravity or planetary movements, but we sure can trump the investment processes of one of the world’s most intelligent men by spreading the risk and identifying rock solid stocks with great growth prospects and reliable income streams. Here are a few of the best.
Financial services giant Suncorp Group Ltd (ASX: SUN) dominates the general Australian insurance market in a duopoly with Insurance Australia Group Limited (ASX: IAG). After an unusually high level of natural disasters in recent years contributing to rising claims, the company would appear to be heading in the right direction again.
For the half year to December 2013, net profit declined to $548 million from $574 million a year earlier, but the interim dividend was up 40% on a year earlier and confidence is growing that new cost controls and operational efficiencies will deliver a strong future.
Selling at $12.51 Suncorp trades on a forward price-earnings of 13.6 and fully franked dividend yield of 6.07% based on analyst forecasts for a total payout of 76 cents per share in FY 2014.
There’s also a lot to like about the growth prospects of Westfield Group (ASX: WDC), especially with its heavy exposure to a resurgent U.S. economy and British economy that the OECD now forecasts to grow faster than any other developed nation in the first half of 2014.
The shopping centre giant’s integration of food, fashion, leisure and entertainment drew 1.1 billion visits globally last year. Moreover, market uncertainty about a corporate restructure has seen the shares sold down.
Westfield Group wants to merge its Australian and New Zealand assets with Westfield Retail Trust (ASX: WRT) to form a new entity known as Scentre Group. This would give investors a clear choice as to what they invest in, in terms of both geographic and currency exposure, and allow both businesses to accelerate their growth strategies.
Selling at $10.42 Westfield Group is priced around 15 times forecast 2014 earnings with a partly franked yield of 4.9%. Selling at $3.06 Westfield Retail Trust is priced at 15 times forecast earnings with a yield of 6.5%.
Telecommunications player M2 Group Ltd (ASX: MTU) may also be offering value at around $6 after going ex-dividend today. The group recently reported half-year underlying revenue up 66% and net profit up 26% to $30.94 million.
The market was perhaps underwhelmed on the dividend front; with the group raising the interim dividend “just” 15% to 11.5 cents per share. Disappointed dividend investors may have seen the stock oversold recently, meaning now looks an opportunity to buy a growth company at an attractive price.
Newton’s primary mistake was not spreading his risk and acting on an emotional, rather than intellectual conviction. Although unrelated to the force of gravity, markets rise and fall in regular swings, with the best investors riding out that volatility by buying quality companies at great prices.