2 top performing shares that deserve your attention

Blackmores Limited (ASX:BKL) and Sydney Airport Holdings Ltd (ASX:SYD) are two shares at the top of my watch list right now.

| More on:
bull and bear

digital

The Australian stock market has had a good run over the last couple of months but that has made finding bargains a little bit harder.

Rather than chasing shares that are trading at expensive valuations, it might be wise for some investors (including myself) to take a more conservative approach and wait until prices become more attractive.

Two fast growing companies that I am watching very closely in the hope of a pull back include:

Blackmores Limited (ASX: BKL)

Although Blackmores shares have already fallen significantly after hitting their all time high of $220 per share at the start of this year, I still believe a better entry point will be around the $130-$140 per share level.

There is no doubt that its current year growth will be unmatched by most companies on the ASX, but this doesn’t negate the potential risks the vitamin company could face in the medium term. Blackmores still faces regulatory uncertainty from China, raw material supply concerns and the risk of further competition. Its recent move into the baby formula sector is also being questioned and this has been one of the drags on the share price over recent months.

Despite these concerns, the company is still expected to deliver exceptionally strong earnings growth over the next two years at least. CommSec analysts are forecasting Blackmores to deliver earnings per share (EPS) of $5.28 in FY16 which means the shares are currently trading on a price-to-earnings (P/E) ratio of around 28. In FY17, its EPS is forecast to increase by around 25% to $6.60, placing it on a FY17 P/E of around 22.

These valuations are not excessive assuming Blackmores can meet market expectations, although a slightly lower share price will provide investors with just a little more margin of safety.

Sydney Airport Holdings Ltd (ASX: SYD)

Sydney Airport is my favourite infrastructure company but I would be uncomfortable buying at current levels.

The share price has performed extremely well over the past five years (rising 131% excluding dividends) mainly as a result of two factors.

The first has been Sydney Airport’s underlying financial and operational performance. As the two graphs below highlight, passenger numbers have increased consistently over the last few years driven by strong growth from inbound tourists. This growth in passenger numbers has been directly reflected in the company’s growing profitability.

Source: Company Presentation
Source: Company Presentation

The second factor behind the strength in the share price relates directly to its growing distributions.

In an environment of low interest rates, investors have flocked to Sydney Airport’s reliable dividend. As a result, I believe some investors have priced the shares as if they were bonds causing the shares to become overvalued.

Source: Company Presentation
Source: Company Presentation

As the graph above highlights, Sydney Airport is forecasting 2016 distributions to be 30 cents per share. At the current share price, investors will receive an unfranked yield of 4.2%.

Although this would appear attractive to some income investors, I don’t believe this provides a suitable return for to compensate for the risk of investing in equities. If the shares traded back towards $6 per share, however, I would feel far more comfortable becoming an investor in this high-quality asset.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Christopher Georges has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

The share price of ASX infant products retailer Baby Bunting Group Ltd (ASX:BBN) has been a solid performer so far …

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

A new landmark report by the Intergovernmental Panel on Climate Change (IPCC) was released earlier this week. It provided a …

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest …

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos Limited (ASX: AMS) share price has been on a tear this past week, rising 15% on the back …

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

Online furniture retailer Temple & Webster Group Ltd (ASX: TPW) had a breakout year in 2020, moving from relative obscurity …

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

Shares in ASX healthcare company Polynovo Limited (ASX: PNV) almost doubled in price last year. And, despite a shaky start …

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

Investing in other geographic markets has become a popular way to diversify a portfolio. The risks associated with being exposed …

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

Despite the News Corporation (ASX: NWS) share price getting a 31% bump between November last year and today, News Corp …

Read more »