It's been a good 12 months for the All Ordinaries index after rising almost 13% since this time last year.
As usual, there have been a number of stocks which have comprehensively outperformed the overall market and it's no surprise to see that many of these are steel or resource-related businesses as sentiment returns to these sectors.
Below are 10 of the more popular stocks which have given shareholders cause to smile, along with their forecast earnings:
Company | 12-month return (%) | Forecast earnings for 2016-17 (cps) | Forecast earnings for 2017-18 (cps) |
Whitehaven Coal Ltd (ASX: WHC) | 565.06 | 35.2 | 26.3 |
Resolute Mining Limited (ASX: RSG) | 363.77 | 20.0 | 13.0 |
Fortescue Metals Group Limited (ASX: FMG) | 298.15 | 97.3 | 74.4 |
Galaxy Resources Limited (ASX: GXY) | 283.87 | 3.8 | n/a |
Mineral Resources Limited (ASX: MIN) | 215.00 | 109.6 | 104.8 |
Worleyparsons Limited (ASX: WOR) | 203.43 | 68.7 | 75.0 |
South32 Ltd (ASX: S32) | 186.32 | 23.3 | 19.2 |
Silver Lake Resources Limited. (ASX: SLR) | 156.86 | 5.0 | 9.0 |
Bluescope Steel Limited (ASX: BSL) | 146.10 | 99.3 | 70.5 |
OZ Minerals Limited (ASX: OZL) | 142.71 | 31.6 | n/a |
If you own or are considering buying any of these stocks, tread carefully.
For a start, these high-achieving stocks represent companies in cyclical sectors of the Australian economy and sentiment can be volatile. For now though, things are rosy.
And looking out to 2017-18, analysts expect a majority of these companies will experience a decline in earnings.
Not that forecasts for resources related (or steel in the case of Bluescope) businesses can be comprehensively relied upon due to the number of variables that can affect world commodities, gold and steel prices, but the forecasts are what they are.
Many of these companies are popular with retail shareholders and it's easy to fall 'in love' with a stock, especially when the returns over the last year have been so good.
If there's ever a time though when you should be looking forward and not backwards, it's now.
Personally, I wouldn't necessarily be looking to any of these stocks to duplicate their most-recent returns, and given the strong run in share prices, I think it's inevitable that some of these will experience price corrections at some point.
Valuation and other factors play a part too, but if you're buying shares in this space, you need to be cognisant of the fact you're buying in sectors that can swing wildly. Unlike companies in sectors that exhibit more stability in earnings. For example companies such as CSL Limited (ASX: CSL) and Amcor Limited (ASX: AMC) tend to be more reliable.
Hence, I think there's a bias to the downside, even if it's just on the potential for sentiment to turn against these stocks in the short-term.
If you're going to consider buying any of these stocks, do your own research and, as always, don't rush.
There are many market 'opportunities' offered to you every day and you don't need to swing at all of them. In fact, slowing down and taking your time will probably prove just as advantageous for success in share market investing.