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Investors who fled equity markets in panicked hordes since the leveling off of the GFC in 2009 may be congratulating themselves that the trading year 2012 now appears to be paralleling the dismal performance of the ASX 200 in 2011. 

The glimmers of hope that peeked from the shadows in 2010 and in the early months of 2011 were washed away by a veritable avalanche of bad macroeconomic signs.  Here is a two year performance chart for our flagship index, the S&P ASK 200 XJO:

 

While we are not without our troubles, most would agree our economy is in better shape than the US economy; yet our equities market belies this fact.  From Yahoo Finance here is a two year chart for the favored US index used by financial professionals, the S&P 500 SPX:

 

So what can we conclude from this?  Are American investors as a whole more bullish on the global outlook and their own economy?  Probably not, but plain old common sense suggests another possibility.  Some American investors are desperate for a decent yielding investment and right now fixed income assets and term deposits in that country are at absurdly low rates.  But not so here in Australia.  Here it is easier for investors to ignore the real opportunities that are there in our equities markets, shrug our collective shoulders, and head for the safety of term deposits. 

Despite what you may read in the daily doses of doom to come, dire predictions, and disasters on the horizon, there are stocks on the ASX that have done quite well.  As we embark on the second half of 2012 you have probably seen lists of the top ten and the bottom ten ASX performers in the first half of this depressing year.  We are going to dig into the top ten with one thought in mind.  Are these companies flukes or is there something there of a fundamental nature that indicates the potential of solid performance going forward.  To begin, we have a table of the top ten, but we have added share price range year over year.  Here are the top ten winners of the first half of 2012 on the ASX:

 

Company

 

Code

 

Sector

Share Price

30 Dec 2011

Share Price

03 Jul 2012

YTD Midpoint

% Gain

Share Price

Current

Share Price

52 Wk Hi

Share Price

52 Wk Lo

Acrux Ltd

ACR

Pharma

$2.87

$4.22

47.04%

$4.17

$4.77

$2.59

TPG Telecom

TPG

Telco

$1.33

$1.76

32.33%

$1.81

$1.92

$1.23

Goodman Fielder Ltd

GFF

Food/Beverage

$0.435

$0.575

32.18%

$0.52

$0.99

$0.37

Virgin Australia

VAH

Transportation

$0.285

$0.375

32.18%

$0.375

$0.48

$0.28

Energy Resources of Australia

ERA

Energy

$$1.23

$1.61

31.58%

$1.54

$4.87

$1.13

Goodman Group

GMG

Real Estate

$2.85

$3.71

30.18%

$3.77

$3.88

$2.60

Industrea Ltd

IDL

Capital Goods

$0.98

$1.27

29.59%

$1.26

$1.39

$0.80

Nufarm Ltd

NUF

Materials

$$4.16

$5.38

29.33%

$5.25

$5.51

$3.08

Carsales.com

CRZ

Software/Services

$4.77

$5.99

25.58%

$6.20

$6.28

$3.79

Ardent Leisure

AAD

Consumer Services

$1.02

$1.27

24.51%

$1.26

$1.35

$1.00

 

Acrux Ltd (ACR) is in the Pharma/Biotech sector with a patented transdermal drug delivery system called MTDS (Metered Dose Transdermal Spray).  Transdermal means the medication is delivered through the skin as apposed to orally or via injection.  Their spray or liquid application technology is unique and has substantial advantages over patch applications as well as oral and injection.  The company claims patient surveys already show that 100% of patients currently using the once revolutionary skin patch as a means of dosage prefer MTDS and 88% of patients on oral medication would prefer MTDS.

ACR is in partnership with American Big Pharma blue chip Eli Lilly and already have two approved products in the market, the most promising being Axiron.  The value in this company is not in this specific drug but in the innovative technology.  Proven medicines can be sprayed directly to the skin and also via an invisible liquid.  Think about the size of this potential market.  In its first two revenue-generating years (2010 and 2011) the company earned its shareholders $0.29 earnings per share on NPAT of $46.6 Million followed by $0.35 earnings per share on NPAT of $57.1 Million.  And they are just getting out of the starting gate.

This company is a good example of an investing maxim we all should never forget -follow innovative technology. When a company has something unique and patent protected, good things happen.  Axiron got FDA approval for the US market in late 2010 and the licensing arrangement with Eli Lilly saw marketing begin in early 2011, so let’s look at a 2 Year share price performance chart for ACR:

 

Investors who refused to bury their heads in the sands of term deposits and fixed income investments and looked for opportunities in equities had a big one here.  For those who were looking and followed the progress of the application of this innovative technology, the share price has appreciated 140% over two years, despite battering by the dismal view on the global economic front.  Note there were buy on the dips opportunities along the way and a recent FDA request for more information from ACR before extending its core patent on Axiron from 2017 to 2026 led to another drop.  Remember, innovative technology always wins in the end.  If you believe in “whale watching”, note that James Packer’s Ellerston Capital recently bought a 5.4% stake in Acrux.

TPG Telecom (TPM) is one of our junior telco providers with big plans.  While others fret over the potential negatives of unknown regulatory constraints with the National Broadband Network, CEO David Teoh is ready to use his lower pricing business model to take market share from the big players, most notably Telstra.  Since their entry in the ASX as a Telco company Internet Service Provider (ISP) in 2008 TPM has made some notable acquisitions including Brisbane based PipeNetworks (PIPE) and later Intrapower (IPX).  Telco analysts cite those acquisitions as being responsible for the company’s stunning 2012 Half Year results – NPAT of 55.7 Million, an increase of 65% over 2011 Half Year results.  The announcement on 20 March 2012 gave the share price a nice bump, although TPM was already in an upward trend since the start of the year.  Here is their one year share price performance chart:

 

Goodman Fielder Limited (GFF) makes and distributes branded staple food products.  While their product line of things like milk, bread, flour, and cooking oils will always be in demand, in tough times like these price-conscious consumers are prone to switch from higher cost brands to cheaper alternatives.  In additions, rising input costs are hurting GFF’ margins, as is the supermarket pricing wars the big entrants are currently waging.  With all that downside, how could GFF have made the top ten list?  Their one year share price performance chart and a relevant news item tell the tale.  Here is the chart:

 

This one is an excellent example of the downside of looking at a single statistic without context.  While the company may be up 32% over the half year, it is down 40% year over year and you can plainly see from the chart something happened to spike the price upward and it has been falling ever since.  What happened was Asia’s largest agribusiness conglomerate, Singapore based Wilmar International Limited, took a 10.1% stake in GFF and then announced they were considering further increasing their stake.  GFF has a debt to equity ratio of 58.5% as of the most recent quarter with $902 Million in total debt and $127.1 Million cash on hand.  Stay away as there are better opportunities out there. 

Virgin Australia Holdings Limited (VAH) rechristened themselves dropping the former moniker of Virgin Blue Holdings Limited in order to change their image as strictly a low cast carrier.  They are our second largest airline and have gone international and upgraded their fleet and service offerings to better compete with Qantas.  Meanwhile, Qantas unleashed its own low cost carrier, Jetstar, and it is giving VAH a bit of a headache. 

Nevertheless, VAH is dead serious about going after Qantas and they have entered into alliances with big names in the international flight operations like Delta