Reporting season has seen the usual run of winners and losers, with several familiar names hitting 52-week lows and a whole pile of companies reaching new heights.
The rapid price shifts can turn sorting the wheat from the chaff into a near-impossibility for the average investor, with the ‘group-think’ emotions of fear and greed affecting judgement.
Here at The Motley Fool we try to ignore market gyrations – easier said than done – because they’re not always relevant to the task of picking great companies.
In fact, being at a 52-week high or an all-time high means nothing in the grand scheme of share investing.
Great companies with great growth prospects will by definition hit numerous new highs over the years as their businesses come to fruition and investors become aware of it.
Prodigy Liquefied Natural Gas Ltd (ASX: LNG) has hit no less than seven new highs in the past six months – and its business is just getting started.
Buying a company at a 52-week high could mean nothing if the company is expecting to record even higher earnings in future years, as all of the following companies are.
Amcor Limited (ASX: AMC) – last traded at $11.08, up 13.9% in the past 52 weeks
Amcor has risen 10% since its annual report was released on Tuesday, with investors apparently buying into the impressive results – profit up 24.7%, dividends increased by 26.5%, innovations reported throughout the supply chain and a shift to USD reporting to reduce currency fluctuation effects.
The company expects to grow earnings again next year, although business in developed regions remains subdued and most of the growth will occur in emerging economies.
The exposure to Latin America and Asia is beyond price and although Amcor is not a cheap purchase it is quite likely to continue to generate shareholder value over the long term.
Goodman Group (ASX: GMG) – last traded at $5.55, up 18.4% in the past 52 weeks
Goodman Group is a well-regarded real estate investor that generates reasonable shareholder returns but seems to suffer from a perpetual case of being over-valued by investors.
Its recent results were also pretty good – particularly the 46% increase in revenue – and the company also has significant opportunities afforded by its global diversification and large land bank in China.
Analyst Morningstar has set a fair value of $6 on the stock, although I personally am wary of buying into Goodman Group as its share price is substantially higher than its Net Tangible Assets (NTA).
Goodman is a solid performer, however there are several other property investors out there trading at a considerable discount to NTA (i.e. the company’s assets are worth more than their share price).
These other companies offer a correspondingly higher dividend yield and it is not hard to find good investments yielding 6% or more.
Sims Metal Management Ltd (ASX: SGM)
Shares in Sims soared last month after management announced a long-awaited plan to rejuvenate the recycling behemoth.
CEO Galdino Claro’s plan to grow Earnings Before Interest and Tax (EBIT) by 350% over the next five years without relying on external factors has rightfully excited investors. Nevertheless they may have wished they waited for today’s preliminary annual report to be released before buying in.
Revenue for FY2014 fell 0.8% and the company recorded an overall loss of $88.9 million, which includes a 62.6% reduction in underlying EBIT – I expect this 52-week high may shortly be reversed before the transformation begins to take effect later this financial year.
In summation, I consider Amcor to remain a Buy, Goodman Group as a Hold, and Sims Metal Management as one for the watch-list to see how its five-year plan begins to evolve.
Amcor in particular holds many of the long-term advantages we at the The Motley Fool like to see in our investments, but it does appear a bit expensive and also suffers from the common blue-chip malady of being over-reported.
Ceaseless coverage of the largest stocks make it very difficult to find bargains with great growth potential, which is why our free report covers a small, under the radar share with a record of high-quality growth.
In addition to a long string of growth in previous years, this company also has grand plans for expansion which are perfectly timed to take advantage of Australia’s wider economic situation.
It’s a company I already own, and one I think you should have a look at as well.
If you’re interested, you can access our FREE report simply by clicking on the link below and entering your email address – it takes less than 30 seconds – and we’ll send it to you, completely FREE!
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Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.
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