There have been a number of studies over the years that investigated the correlation between analyst 'buy' ratings and share price outperformance. While the results haven't often concluded that analysts get it right more often than not, it's worth listing to what they're saying before investing in a company.
Analyst commentary can give an insight into the quality of management or industry dynamics that the individual investor often can't access. Here are three companies analysts like and their reasoning:
Ardent Leisure Group (ASX: AAD) has already returned 55% in 2014 but analysts expect the share price to continue climbing after the group acquired Fitness First in Western Australia and announced that it would be speeding up the roll-out of Main Event centres in the US.
Most analysts believe that despite being expensive relative to the rest of the consumer entertainment sector, future earnings potential of double-digit growth through to 2016-17 justifies the lofty valuation. The company's dividend yield is also expected to rise to nearly 6% in 2015-16.
Flight Centre Travel Group Ltd (ASX: FLT) shares are actually 3% lower than where they started 2014. The poor performance is the result of a huge 2013 and also tougher market conditions following the depressing budget announced by the Abbott government.
The company has forecast up to 8% growth in underlying profit for the 2014-15 financial year, but analysts believe that guidance could be conservative if consumer spending picks up over the next 3 to 6 months. Analysts also like the purchase of UK-based Topdeck Tours and predict a dividend yield of 5.3% for 2014-15.
Finally, analysts like IOOF Holdings Limited (ASX: IFL) following the acquisition of SFG Australia in May. They note that IOOF has a strong history of integrating purchases and expect management to be successful in cutting $20 million from costs by the 2015-16 financial year.
Analysts also note that IOOF's earnings are less cyclical than the pure-play fund managers and consequently should be able to sustain a fully franked yield above 5% over the medium term.
