Investors who fled equity markets in panicked hordes since 2009 may be congratulating themselves that the trading year 2012 now appears to be paralleling the dismal performance of 2011. Here is a two year performance chart for our flagship index, the S&P ASX 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. Here is a two year chart for the favoured US index, the S&P 500 SPX:
So what can we conclude from this? Are American investors 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. It is far easier for Aussie punters to ignore the real opportunities out there in equities, and head for the safety of term deposits.
Despite what you may read in the daily doses of doom and disaster, there are stocks on the ASX that have done quite well. The issue for consideration is whether these stocks have already topped, or have much further to run.
Here are the top ten winners of the first half of 2012 on the ASX:
30 Dec 2011
03 Jul 2012
52 Wk Hi
52 Wk Lo
| Goodman |
| Virgin |
Energy Resources of Australia
| Goodman |
| Capital |
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 (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 including milk, bread, flour, and cooking oils will always be in demand, in tough times price-conscious consumers are prone to switch from higher cost brands to cheaper alternatives. In addition, rising input costs are hurting GFF’ margins, as are supermarket pricing wars between the big players. With all that downside, how did Goodman make 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 is up 32% over the half year, it is down 40% year over year. The share price rose sharply earlier this year but has fallen ever since.
Asia’s largest agribusiness conglomerate, Singapore based Wilmar International Limited, took a 10.1% stake in GFF. 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, Etihad, and Singapore Airlines. Etihad recently acquired a 3.96% stake in VAH and attributed some of their solid revenue increase in the last quarter to their partnership arrangements.
Following a disastrous NPAT loss of about $67 million for the Fiscal Year 2011, the 2012 Half Year results reported in December of 2011 showed a healthy profit of $51.8 million. The share price was in decline up to that point and then turned upward, but it reversed course in March of 2012 and has been volatile since. Here is their one year share price performance chart:
Given the volatile price of oil and global growth concerns, owning airline stocks doesn’t seem to the best use of your investing dollar when compared to other opportunities. Although VAH has big plans they also have big debts. Their debt to equity ratio (MRQ) is 184%, which leaves them dangerously exposed to a global economic shock from a credit freeze.
Miners have taken a beating of late but Energy Resources of Australia (ERA) managed to post a few months of share price appreciation that earned it a spot on the midpoint top ten list. Considering they are a uranium miner this makes the performance even more surprising but a look at a share price performance chart year over year tells a different story:
Heavy rains slowed production and lowered guidance drowned the share price as well as the mine. Although ERA is one of the largest uranium producers in the world, selling its product to nuclear fired power utilities in Asia, Europe and North America, the future use of nuclear power for electricity generation has come under intense scrutiny since the Japanese Fukushima nuclear plant disaster. Japan took all its nuclear facilities off line and plans to restart two plants have yet to happen as public concerns persist. Stay away from this one unless you get a thrill from excessive risk taking.
Goodman Group (GMG) is an integrated commercial and industrial property group operating in 16 different countries throughout Australia, Europe, the UK, and Asia/Pacific. They stgelop and own some of their properties and manage others focusing on warehouses, large scale logistics facilities, business parks and office buildings.
Hardly surprising, the GFC led many companies around the world to forego expenditures on the kinds of properties Goodman is known for. A 20 June 2012 announcement of the company’s entry into the US market with a partnership agreement with California-based, Birtcher Development & Investments sent the stock higher. However, as you can see from their one year price chart, the road has been volatile:
The risk with GMG is acceleration of a global slowdown which will drive up property vacancy rates and dry up demand for new stgelopment and conversion projects.
Mining equipment and services provider Industrea (IDL) was limping along until US conglomerate General Electric (NYSE:GE) stepped in with a takeover offer of $1.27. The IDL Board has recommended approval of the offer and some details need to be worked out over some of IDL’s assets, but the party is over with this stock. The share price jumped to $1.265 on the news and has stayed there ever since. Here is the chart
Nufarm Limited (NUF) is in the crop protection business, operating in more than 100 countries. They make and distribute a wide range of agricultural chemicals used by farmers to safeguard their crops from weeds, pests and disease. The GFC hit them hard, ending 6 consecutive years of positive NPAT growth with a drop in 2009 followed by a loss of $34 million in 2010 and $64 million in 2011. First Half results for 2012 showed a ray of hope, with reported NPAT for the period of $18 million. Despite this the analyst community is overwhelmingly bearish on Nufarm’s prospects, with three downgrades since its March 2012 results. Citi and Deutsche Bank have SELL ratings on the company. But Nufarm’s share price doesn’t reflect bearish opinion as yet:
Nufarm is fraught with risk, but this is a stock to watch particularly if you’re bullish on the outlook for the agricultural sector. Book value per share for NUF in the most recent quarter was $5.75 per share with the share price at $5.45 as of 19 July 2012.
How can a stock that appears to have taken up permanent residence on the ASX Top Ten Shorted List outperform the market? Carsales.com (CRZ) is our market leading on-line automotive classified website, with first mover advantage and 75% market share. They have other online classified offerings as well, including bikes, boats, trucks, machinery, equipment and accessories. They also offer a variety of software services to the automotive industry. The shorts have a close eye on CRZ, perhaps because of competition from the likes of News Corp, Fairfax, and Telstra; but investors clearly disagree. Here is their one year share price performance chart:
Carsales.com has brand identification, dominant market share, diversification, and zero debt. The shorts may have it wrong on this one, but take note nevertheless. CRZ reported Half Year results in February 2012 showing 20% increase in profits and a 22% increase in operating revenues.
The final company in the Top Ten List is Ardent Leisure (AAD), an investment trust and operator of leisure and entertainment venues. They own a variety of leisure properties in Australia and the US from theme parks to bowling alleys, health clubs, marinas and family entertainment centres. The company was hit hard by the GFC but some fundamentals are improving. NPAT for Fiscal Year 2008 was $39.6 million and following two years of declining profits, NPAT for FY 2011 was $36.1 million. The company’s Half Year Results for 2012 showed continued improvement, propelling the share price higher. Here is their one year share price performance chart:
Leisure is a consumer discretionary item so this stock is at the mercy of economic conditions. The current dividend yield of 9.3% is impressive, but a five year dividend history shows dividends per share have levelled of from $0.196 in 2008 to $0.108 in 2010. Obviously a fall in dividends is not good news but the fact they maintained a respectable dividend in tough operating times is a positive sign.
The ASX 200 index appeared to be in recovery mode to the middle of 2010 but has been declining ever since. Investors in droves have abandoned the market in the belief there is little value and no safety. The clamor over the coming of the NBN weighed heavily on our largest telco provider, Telstra (TLS) yet their share price has shot up from around $2.60 to $3.80 over the last two years. Two of our stocks in the top 10 list also outperformed. Here is a two year chart for Acrux and Nufarm:
The opportunities are there if you have the time and patience to seek them out.
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