MENU

Why these FY18 superstar stocks could underperform in July

This financial year has produced several shooting stars that have rocketed ahead to help the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) finish with a 7% gain before dividends, which would push returns to around 11%.

We can pay tribute to large cap miners like BHP Billiton Limited (ASX: BHP), oil stocks like Santos Ltd (ASX: STO) and investment bank Macquarie Group Ltd (ASX: MQG) for the robust returns but I fear some of these outperformers could be in for a tougher time from next week onwards.

The good news is that my sombre prediction isn’t based on deteriorating fundamentals but on profit taking. The fact is, many investors are probably holding off selling their winning stocks to crystallise profits till the start of FY19.

This is because they won’t have to pay tax on their winning trades till calendar 2020 if they only close their positions when the new financial year starts next week.

If you use an accountant, the deadline for you to file your FY18 returns is around May next year and you will need to settle your tax liabilities by around June. If you book your profit next week, you will only need to declare the profit in May 2020 and settle your tax bill in the following month or so.

That’s nearly two years away!

From that perspective, we could see selling pressure on some of FY18’s biggest winning trades and I suspect the sell order could be lining up for artificial intelligence company Appen Ltd (ASX: APX) as it tops the league table for mid and large cap stocks.

Appen’s share price has surged nearly 240% over the past 12 months, which puts the stock on a one-year forward price-earnings multiple of around 35 times.

That isn’t ridiculously expensive given its bright outlook but there are probably a number of investors who would be tempted to take some money off the table in the near-term.

Other stocks that could be hit with a bout of profit taking are milk products supplier A2 Milk Company Ltd (ASX: A2M) and Bellamy s Australia Ltd (ASX: BAL).

These market darlings surged 173% and 126% in FY18, respectively, on the back of booming Chinese consumer demand. This thematic remains supportive of the stocks but both are trading on a P/E of around 40 times at a time when there are growing concerns about the health of the Chinese economy from the threat of a global trade war.

This could be enough to convince some to start locking in some profit in July.

As much as I hate to admit it, one of my favourite stocks Nextdc Ltd (ASX: NXT) also looks primed for plucking. The cloud services company has jumped 67% this financial year and is closing in on what I consider fair value at around $8 a share.

You can’t blame shareholders for wanting to cash in some of their chips on NextDC too even though the longer-term outlook for the stock still looks great.

See you on the other side of the financial year Fools!

4 Stocks for Building Wealth After 50

Renowned investor Scott Phillips just released a brand-new report detailing his 4 favourite stocks to buy right now.

And I don't know about you, but I always pay attention when some of the best investors in the world give me a stock tip.

This is your chance to get in at the very beginning of what could prove to be very special investments.

Click here to get started today!

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Macquarie Group Limited, and NEXTDC Limited. The Motley Fool Australia owns shares of A2 Milk. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.