I've been caught out several times in the past by looking for shares in November and December to buy for 'next year'. This is usually a fool's errand because companies often flag next year's improved earnings in the current annual report, which operates on the financial, rather than the calendar year. This means that by the time you get to the end of the calendar year, investors have already had several months to read the annual report, and they know that earnings are increasing when they buy they stock.
Sometimes though, you can get around this by keeping on top of ongoing announcements throughout the year and being aware of long-term developments that are coming to fruition. I've listed three companies here that I think could outperform next year.
Reject Shop Ltd (ASX: TRS)
The Reject Shop is a market reject alright, down nearly 40% from its previously lofty valuation in January after investors were disappointed by a results announcement. The silly thing is, revenue grew by 17%, while net profit was down because the company opened a number of new stores and didn't receive a $2 million insurance payout like it did in the previous year. Earnings should be up again in 2015 as the company continues to focus on driving profitability and new stores contribute to earnings. Even if you don't subscribe to that theory, the fact is that the company is 40% cheaper after a 15% decrease in profits. Not a bad discount!
Yellow Brick Road Holdings Ltd (ASX:YBR)
Founded and managed by chairman Mark Bouris (who still owns 22% of the company), Yellow Brick Road is a small non-bank lender set to declare its maiden profit in FY2015. Its most recent half-yearly result saw revenue from wealth management jump by 129% and lending by 73%. An ongoing share buyback scheme and three large acquisitions should see the company's valuation soar alongside its profits in 2015. Yellow Brick Road is already trading towards the top of its 52-week range, but there should be plenty more to come.
Beach Energy Limited (ASX: BPT)
A good-sized mid-cap oil and gas producer, Beach Energy has thus far escaped investor hype over its potential. With $400 million cash on hand and ongoing exploring and drilling efforts regularly bearing fruit, Beach is one of the better oil companies on the ASX for its price. The company is on track to meet its guidance of $1 billion revenue (a new record) for the year, and the recent quarterly report shows production up 28% on the prior corresponding period. A success rate of 87% in Australian exploration wells and ongoing developments overseas should ensure the company's oil reserves keep pace with increased production. Beach is another company at the top of its 52-week range, but future years should see more to come.
Foolish takeaway
Don't get caught out by waiting until the annual report announces the expected profits for next year before trying to jump on board. These shares have already given pretty weighty clues that their FY2015 will be even better than 2014, so seize the opportunity and buy tomorrow's great shares today!
