In every share market there is a place reserved for the so-called glamour shares. The attributes of these stocks vary, and they are hard to define, but they are usually high-growth businesses, exposed to an investment megatrend (think digital disruption or the Asian consumer) and have recently experienced share price strength.
All three stocks on this list meet these three criteria. But it would be a mistake to buy them without considering why they may not be able to repeat their performances in 2016.
Blackmores Limited (ASX: BKL) was the success story of 2015, with the venerable vitamin maker delivering investors almost $200 per share capital growth over calendar 2015.
However, it was not that long ago that Blackmores was struggling under the weight of a structural shift towards pharmacy warehouses rather than community pharmacies. This was eroding margins, at the same time as Swisse Wellness was aggressively advertising its product using every celebrity it could sign up.
While the demand for vitamins from Asia is undoubtedly growing, the fact that Blackmores was recently held back by fairly routine business factors shows investors something important: it is not in possession of a unique, difficult to replicate product or service. Indeed, many firms are attempting to emulate the success of Blackmores, with competitors in Australia, New Zealand and Europe all fighting hard for a slice of the Asian vitamin boom.
Blackmores does have a strong brand name and exposure to Asia, but brand is not an entrenched source of competitive advantage for an undifferentiated product like vitamins, and the majority of company earnings still come from Australia.
Domino's Pizza Enterprises Ltd (ASX: DMP) is another company that had a brilliant 2015, doubling its share price over the year. The pizza maker has morphed into a quasi-tech stock, with CEO Don Meij talking as much about innovation and digital disruption as he does about pizza toppings and menu additions.
Innovations like four click ordering online or the ability to send a text message to order a pizza (yes, seriously) coupled with acquisitions offshore all helped propel revenues and profits to record levels.
Domino's is now represented in Australia as well as Japan, France, Germany, England, the Netherlands and Belgium. However, each of these markets have discrete challenges, and as global giants like McDonald's and KFC have shown through their international struggles in recent years, the international transferability of a fast food business model is questionable.
With management likely to be busy bedding down all of the new acquisitions and joint ventures in 2016, there is unlikely to be much market moving news in terms of corporate activity, and there is a question mark about how much of Domino's Australia's success can be replicated offshore.
Seek Limited (ASX: SEK) has been a market darling for over a decade now. It took the traditional classifieds method of listing jobs and consolidated it into a simple, easy to search online jobs board.
This allowed it to grow into a multi-billion dollar company, and expand well beyond the small Australian market into larger international arenas, including China, Brazil, Mexico and the Asia Pacific region more generally. The company has also stated its intention to source more revenue from overseas than domestically.
However, to do that, Seek will be up against a company that is disrupting the disrupters: LinkedIn. LinkedIn began life as an online resume / CV for job seekers, but has now evolved into a recruiting database, education company and employee contact portal as well.
In fact, businesses looking to hire can post jobs directly on the site, get lists of suitable candidates sent to them, and view the work histories of potential employees before they even solicit applications. The process also works in reverse, with candidates able to search all jobs posted on the site.
Anecdotal evidence suggests that certain industries like IT and consulting use LinkedIn for the vast majority of their hiring, while other fields are also making more use of the highly engaged, tailored and personal experience that LinkedIn can offer both employers and job seekers.
As a result of competition from a genuine Silicon Valley superstar, Seek may well find that international and domestic growth in 2016 is far more difficult than it has been in the past.
