At this time of year a lot is written about how markets could change as the calendar year ticks over, but the truth is that virtually nothing ever changes on the fundamentals of doing well in the Australian share market.
You have to buy well run companies with low debt levels, strong returns on equity, and long track records of growing profits as listed businesses.
Preferably these companies will also have some kind of competitive advantage normally via scale within their operational sectors that means they are likely to keep performing well over the long term by beating out the competition.
Ignoring timeless investing fundamentals to try and make fast bucks from speculative stocks or changes in governments around the world is generally a waste of time and money.
There’s no need to try and guess the unknown, when you could buy top-quality companies and let time do the heavy lifting. Remember, that at the end of the day share prices will always follow earnings higher or lower over time.
Below are 10 of the best companies on the ASX that all investors should have their eyes on owning in 2017.
JB Hi-Fi Limited (ASX: JBH) is Australia’s dominant electronic goods retailer with an excellent track record of growing profits and dividends. At $27.97 it sells for around 16x FY17’s estimated earnings with a fully franked trailing dividend of 3.6%.
Cochlear Ltd (ASX: COH) is the manufacturer of electronic hearing implants that is perhaps the ASX’s best long-term growth stock. At $122.69 shares have dropped significantly from recent highs and probably represent a decent entry point for investors looking to build a position over time by buying shares in parcels.
Commonwealth Bank of Australia (ASX: CBA) is probably the highest quality option among the big banks and is likely to provide investors with strong total returns over the long term. The stock looks expensive at $82.95, but is likely to lose altitude after it goes ex-dividend in the second half of February 2017.
ARB Corporation Limited (ASX: ARB) is the founder led four-wheel drive car parts business with a phenomenal track record of profit and divided growth. The stock is up nearly 400% over the last 10 years and with its founders likely to be at the wheel for a long time yet it looks hard to go past in 2017.
SEEK Limited (ASX: SEK) is a founder-led online jobs advertising business that is continuing to deliver strong growth across its global operations. Its Asian operations in particular continue to perform strongly, while management is investing heavily in building out its platforms’ product offerings to grow revenues and counter competitive threats.
MNF Group Ltd (ASX: MNF) is another founder-led company in the global online communications space offering services similar to those provided by Skype for example. It has a superb track record of profit and dividend growth with minimal debt and a smart founder plotting long-term success in the fast-growing tech sector. The fact this company is still small with a market value around $320 million means it has plenty of room to grow.
TPG Telecom Ltd (ASX: TPM) is another founder-led business that had a tough 2016 after flagging falling profit margins due to the arrival of the national broadband network. Its founder is a smart operator though and I expect that the large share price falls represent an excellent buying opportunity for long-term investors.
Magellan Financial Group Ltd (ASX: MFG) is a founder-led fund manager that remains the best on the ASX due to its international focus and fact that the founders are able to focus on costs and growing the business alongside shareholder wealth. The stock sells for $23.92 with a trailing fully franked yield of 3.7%.
Reliance Worldwide Corporation Aus (ASX: RWC) is a founder-led plumbing and bathroom parts supply business with global growth horizons. Counting against this business is that it does not have much of a track record as a public company, although it looks one to watch closely over the year ahead.
REA Group Limited (ASX: REA) is another business I expect to post a strong 2017 as local residential property market listings pick up and its international businesses continue to perform. It has the backing of News Corp, leverage to property as an asset class, and the kind of high return on equity that should make it attractive to all smart investors. Unfortunately, the stock has been on the rise recently to hit $55.69 today, although it looks a touch expensive now, I would not be surprised if the stock tracks significantly higher over the next 3-5 years.
Attention: Six of the ten companies above are profitable, founder-led companies, with strong medium-term track records of growing shareholder wealth.
Anywhere you see companies ticking these boxes on the ASX – I suggest you take a very close look.
If it’s dividends you’re after The Motley Fool knows of some founder led companies like these that also pay BIG dividends.
Just read on below to find out their names….
Where to invest $1,000 right now
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*Returns as of February 15th 2021
Motley Fool contributor Tom Richardson owns shares of Cochlear Ltd., Magellan Financial Group, MNF Group Limited, REA Group Limited, SEEK Limited, and TPG Telecom Limited.
You can find Tom on Twitter @tommyr345
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.
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