The financial news has been chirping on about the "Santa rally" gains since late last week. Although welcomed, the S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO) is only back up to 5442. That level has been with us since about February, so if that's a rally, then Santa has some very low expectations to meet.
At a time when many people are thinking of holidays, gifts and recreation, investors should use the quiet time to check out their portfolio. If you made some gains, great! If a couple of duds held back the others, welcome to the club.
If you haven't done a portfolio check-up in months, then you may be due. Peter Lynch, the famous Fidelity Investments fund manager who racked up incredible gains during his career, suggested at least every six months you should go through your stock positions.
He wrote that you are trying to answer two main questions-
1) Is the stock still attractively priced relative to earnings?
2) What is happening in the company to make the earnings go up?
If the stock story has become better, then it may be time to add to the position. (Don't automatically sell the stocks that turned a profit- there could be much more to come!)
Is the story worsening? Judge harshly and prepare to jettison it.
If the story is unchanged, then it's your call to keep it or sell and commit the money to a better stock.
Sticking with the "improving story" category, here are two stocks that have seen their stories light up and push gains higher.
— Ramsay Health Care Limited (ASX: RHC) is the largest private hospital operator in Australia and has spent the past year growing its footprint in France and Asia through acquisitions. It scored a 20% earnings gain in FY 2014 and analysts are looking for about an annual 18% increase in earnings over the next two years. The healthcare sector has made bigger gains than the ASX 200 Index and Ramsay Health Care is one reason why. A quality company to add to the portfolio.
— Domino's Pizza Enterprises Ltd (ASX: DMP) is a stock that I have written about a number of times this year. Its revenue surged when it added the business from its 75% stake in Domino's Pizza Japan. The growth story doesn't stop there. To answer question #2, the expansion of more stores in Japan is the big growth story for the stock- one that attracted me as well. To answer #1, the PE of this remarkable stock is at a lofty 43. For an expected consensus forecast of 23% growth in earnings over the next two years, that is stretching the valuation. It has pulled back a little recently, yet just not enough for my liking. Forget the Santa rally, give me a "Bah Humbug! Scrooge" sell-off to get this company down to a more attractive price level.
