The best risk management technique in the share market isn’t diversification. It’s understanding what you own and why. After all, if you do your research you’ll understand the company’s potential weaknesses and be able to make an informed decision about whether, or not, it suits your risk tolerance.
Peter Lynch – a legendary fund manager with an even better track record – said: “Owning stocks is like having children – don’t get involved with more than you can handle.” With that in mind, let’s take a look at the following four stocks to determine which are worthy of further research with the possibility of adding to your portfolio and which aren’t.
Australia and New Zealand Banking Group (ASX: ANZ) is the third biggest bank in Australia but has the largest exposure to Asia through its ‘Super Regional Strategy’. The strategy will differentiate it from its peers, such as Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) in coming years, particularly if it manages to draw 25% to 30% of group revenue from its Asia, Pacific, Europe and Americas division by 2017. However, in recent times, all bank share prices have rallied beyond a reasonable ‘buy’ price. As such investors would be advised to adopt a “wait-and-see” approach with ANZ.
Myer Holdings Ltd (ASX: MYR) is a retail stock which many (including myself) had hoped would buck the trend of downwards like-for-like sales posted by many retail chains. It didn’t and now it seems investors are holding out more faith for a merger with rival David Jones Limited (ASX: DJS), rather than a turnaround in its own operations. I too have lost faith in the company and don’t believe it’s worth holding onto despite the prospect of a potentially lucrative merger.
Peet Limited (ASX: PPC) is a property developer with key assets in Western Australia, Victoria, Queensland and New South Wales. Like most developers, Peet’s results are heavily leveraged to improving confidence in residential housing which, for the most part, is being spurred on by record low interest rates. It operates on healthy levels of gearing and EBITDA margins. Trading on a forward price-earnings ratio of 17, Peet could be at fair value but still deserves a spot on your watchlist.
Collins Foods Ltd (ASX: CKF) is a small-cap stock with large-cap brands under its control. It owns and manages KFC and Sizzler restaurants throughout Australia and Asia. In recent times, earnings from the Sizzler chain have come under pressure, masking the growth in its KFC businesses. Trading on 10 times earnings with a 5.1% dividend fully franked, Collins Foods could represent good long-term value at current prices.
Each of these four companies boast established brand names with long-term potential. However no worthwhile investment is without risk, especially with these four companies. ANZ deserves a spot on your watchlist but is expensive at current prices and doesn’t warrant a ‘buy’ rating. Myer is facing stronger headwinds and appears to be fairly valued around $2.30. Peet and Collins Foods are two companies worthy of further investigation.