In November last year, some readers might recall an article listing investment bank JP Morgan's top five stocks for 2014. Sims Metal Management Ltd (ASX: SGM) was one of the chosen five, with a falling Australian dollar and market improvements set to filter through to earnings.
It was joined by Coca-Cola Amatil Ltd (ASX: CCL) with JP Morgan feeling that concerns over the company's profitability had seen the company oversold, and likely to bounce back.
Brambles Limited (ASX: BXB) and ResMed Inc. (CHESS) (ASX: RMD) were picked because of significant offshore earnings, which stand to benefit from the expected weakening of the Australian dollar. Finally, Crown Resorts Ltd (ASX: CWN) was chosen because of its exposure to growth in emerging markets through its Asian joint-venture.
It hasn't quite worked out that way over the first six months of 2014 however with:
Sims Metals – down 9%.
Crown Resorts – down 11.5%.
Coca-Cola Amatil – down 24.5%.
Brambles – down 1.85%.
ResMed – up 4%.
Now, this is not the fault of any JP Morgan employee, because asides from the share-market being out of their control, the world can change in highly unexpected ways virtually overnight (as the newly re-bordered Ukraine shows us), sending predictions out of date very quickly. I made my own 2014 predictions in December, but by now – right or wrong – they're about as important as the shape of the craters on the back side of the moon.
Six months on investors should be asking themselves – "did I buy this stock for a good reason? Am I going to hold it for a long time?" If both of those answers are 'yes', you get to the next, most important, question – 'has my investment thesis changed?'
That's a tough one to answer, because both Sims Metals and Coca-Cola have indicated corporate restructures this year, while Crown and ResMed returned stellar profits, and Brambles made an acquisition.
The latter three companies look likely to continue with profit growth into the future, and it would also be reasonable to expect improved performance from Coca-Cola and Sims once their restructures are finished and paid for. With that in mind, Coca-Cola and Crown in particular start to look pretty cheap. You might be pleasantly surprised to find out just how well steadily improving profits translate into price growth over a five-year period – and if these are good companies, aren't they an even better proposition when their prices are lower? Situations like these are just what The Motley Fool looks for in an investment, and that's why our shrewd analysts have delivered market-beating returns for our readers so far.
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