When stocks start making a move upward after a period of trading sideways, they can attract a lot of attention from investors. Is this the chance to ride it up further? You need to know what is driving the stock and if the share price has gotten ahead of expected growth. Investors can rush in and sometimes bid a stock up too quickly when they see an opportunity.
These three stocks have performed relatively well over the past year, but how much more do they have to offer?
Westpac Banking Corp (ASX: WBC) does offer a very attractive 4.7% yield fully franked, yet analysts forecast earnings and dividend growth to be in mid-single digits for the next several years. It is trading at a slight price/earnings discount to Commonwealth Bank of Australia (ASX: CBA), which is understandable since CBA is expected to grow earnings more. Over the past five years, CBA’s earnings per share growth rate was about 9% compared to Westpac’s 6%, so I think CBA would be a better pick.
Pathology and medical diagnostic service market leader Sonic Healthcare Limited (ASX: SHL) had a flat half-year result due to acquisition costs as well as investments in several of its labs in multiple countries. In financial year 2014, the healthcare provider achieved a solid 13% earnings increase. Financial year 2015 may be just in the low-single digits, yet the following years could see stronger growth from benefits of the acquisition and investments. Currently, Sonic Healthcare is trading at too much of a premium, so I would hold off until the share price settles down.
DuluxGroup Limited (ASX: DLX), the producer of paints, sealants and home improvement and gardening supplies, is benefiting from the housing boom and lower interest rates. Consumers buy brands such as Dulux and British Paints, Selleys and Yates to spruce up homes before listing for sale and property buyers improve homes after purchases. Interest rates are expected to fall even further, so that could boost DuluxGroup more in the near future. Analysts are forecasting solid earnings growth over the next few years, but it seems the market has already priced that in, so the stock is no bargain. Starting a small position may be alright just to have it in your portfolio, but wait for better entry prices before adding to it.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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