2 great stocks to watch this week

Lately there’s been an increasing amount of uncertainty in the market, as fluctuations in the AUD and speculation that interest rates will increase impacts share prices. Resource companies in particular have been on a see-saw with the fluctuating dollar and resource prices making it difficult to measure the true potential of these companies. The Aussie dollar may in fact go higher if interest rates rise, as foreign investors head here to take advantage of better returns on their cash. Furthermore, a disturbing number of different analysts and firms – the most I’ve ever seen – are talking about the prospect of a plunge in share prices in the near future.

The best thing to do when the fog of uncertainty comes swirling in is to a) store some extra cash for opportunities, and b) pay attention to company announcements. Xero (ASX: XRO) and Automotive Group Holdings Ltd (ASX: AHE) mightn’t be your idea of a great buy, but at least their latest developments give you a way to gauge their success.

Automotive Holdings

Retail shareholders are routinely short-changed by company capital raisings. It occurs so often, in fact, that it’s more noticeable when a company does the right thing by shareholders than it is when they don’t.

Today however, Automotive Holdings has done the right thing – kind of – and announced it will offer a share placement to retail shareholders at the same price ($3.49) as the recently completed institutional placement. The share placement is only worth $10 million (as opposed to the institutional $115 million), but it’s better than it being institutional-only. The shares are at a meaningful discount to the current price and it looks unlikely that the price will drop in sympathy, allowing shareholders who apply to enjoy an immediate capital gain. The issue will fund acquisitions that appear to be complementary to existing businesses and should offer material earnings increases. Those who believe in Automotive’s expansion could do worse than to apply for a parcel of new shares.


A tech wunderkind, boasting price growth of 684% since listing 18 months ago; Xero’s shareholder update today shows what some of the fuss is about. During the past year, revenue grew 84% and Xero nearly doubled its staff count, laying the footwork for further explosive growth. Most pleasingly, paying customers increased by 200% in the U.S., Xero’s biggest potential target market.

Although still making a loss, Xero’s net cash position improved by $132 million (to $210 million), and management concluded that ‘Xero expects strong growth to continue for the foreseeable future’. It’s an all or nothing strategy, with all revenues being spent on the prospect of accelerating revenue and customer base over the coming years. Shares in Xero are currently down 15% on their recent highs, although I expect that to change this week.

Foolish takeaway

Mandatory reporting on developments that are material to a company’s value is a rule developed to look after you, the shareholder. Make sure you take advantage of it and keep up with the latest in your chosen companies, including updates that are not flagged as ‘price-sensitive’. The sooner you know what a company is going to do, the sooner you can decide what you’re going to do, and the better you can do it – with more profit, and less stress.

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Motley Fool contributor Sean O’Neill owns shares in Xero.

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