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The 30 June marks two milestone dates – the close of the Fiscal or Financial Year; and the midpoint in the Trading or Calendar Year.  It is that time of year when financial publications publish market “report cards” listing the Top Ten and Bottom Ten performing stocks. Both lists often reveal some surprises as well as possible investing opportunities.

The Top Ten list supports the view that blindly avoiding sectors out of favor with market participants may not be the wisest choice.  Investors who favor picking individual stocks over sectors do so in the belief some companies can thrive despite negative sector sentiment.  In the 2014 Midpoint Top Ten list you find seven stocks from sectors under the negative microscope.  Four of the Top Ten are miners from the Materials Sector and three are from Consumer Discretionary.  As always, the question investors ask about “hot” stocks is: are they likely to cool off?

The following table lists the Top Ten performing stocks at midpoint 2014 ranked by percentage increase.  We have included a five year historical performance indicator along with some forward looking growth measures.  Here is the table.

See the table at the end of the article.

Northern Star Resources (NST) went shopping as some of the world’s biggest gold miners looked to sell off assets.  In the past six months Northern Star has added five mines, acquired from Barrick Gold and Newmont Mining at a reported bargain price of less than $200 million.   The increased production capacity vaulted Northern Star into second place among ASX gold miners, trailing only Newcrest Mining (NCM).  The latest acquisition announced on 02 July saw the company state its balance sheet now shows $80 million cash on hand with $70 million in debt, drawn from its $100 million credit facility.  Management expects to pay down the debt within four months.

A few days later the company issued a strong production update that has kept the impressive upward trajectory of the NST share price intact.  Year over year the stock price is now up over 140%, dwarfing the performance of the ASX XMJ Materials Index and its larger rival, Newcrest Mining.  Here is a one year chart.

Despite its impressive historical shareholder return and forward growth estimates in both earnings and dividends, Northern Star is one of only two stocks in the Top Ten list with a consensus analyst rating of Hold. 

Western Areas (WSA) is primarily a nickel miner and shareholders reaped the benefit of an approximately 50% increase in the price of nickel since the beginning of 2014.  In addition, Indonesia issued a ban on exporting nickel and economic sanctions are hurting Russian mining companies, with the possibility of more sanctions to come.

The company claims its two flagship mines – Flying Fox and Spotted Quoll – are two of the highest grade mines on the planet.  The company has additional exploration projects in Australia and in Canada and Finland.  

Western Areas strengthened its balance sheet with a successful capital raise and has upgraded its forward guidance.  On 02 July the company announced a $95 million debt reduction.  Like Northern Star, the share price of WSA has continued to rise as we enter the second half of the trading year.  Here is a one month price movement chart for WSA.

The stock has a strong consensus rating at Overweight, with eight analysts recommending investors Buy the stock and six at Hold and a single analyst with a Sell recommendation.  WSA has outstanding two year growth forecasts in both earnings and dividends.

Consumers watching their bank balances appear to be willing to continue to order pizzas.  Domino’s Pizza (DMP) reported a 38.3% increase in NPAT in its Half Year Results reported on 12 February.  In addition, the company added 60 new stores during the period.  Same store sales (SSS) growth increased 4.6%.  The result was propelled by the acquisition of a 75% interest in Domino’s Pizza Japan.  Growth was strong in Australia and New Zealand as well, with 25 new store openings.  The company also operates in France, Belgium, and the Netherlands.

Domino’s is planning on spending between $30 and $35 million to fund new store openings and expand its online operation.  Analyst consensus rating on DMP is Overweight, with three analysts at Buy and 4 at Hold.  The share price is up 600% over the past five years.  Here is the chart.

Independence Group (IGO) is a diversified miner with operations in gold, nickel, copper and zinc.  The company has taken its shareholders on a wild ride over the last 2 years. Here is the chart.

On 26 September 2013 the company announced the first gold production at the Tropicana mine, its 30% owned Joint Venture project with AngloGold Ashanti.  A highly positive production report projecting output of 90,000 to 110,000 ounces released in November sent the share price upward. Production at Tropicana has exceeded that guidance, with more than 132,000 ounces produced as of the June Quarter.  Independence Group’s nickel, copper, and zinc production are also exceeding earlier guidance.

Analysts appear to believe the company’s difficulties are in the past, with an Overweight rating and seven analysts with a Buy recommendation and one at Overweight.  The company has triple digit growth forecasts in both earnings and dividends.

Bega Cheese (BGA) is the second stock in the table with a consensus Hold rating, with no Buy or Sell recommendations and four analysts at Hold.  Bega began trading on the ASX in August 2011, with an opening day closing share price of $1.64.  Initial shareholders have been well rewarded, with the stock price up about 175%.  Here is a price movement chart for BGA since its entry to the ASX.

The share price benefited from Bega’s attempt to acquire a controlling interest in rival Warrnambool Cheese & Butter (WCB) but withdrew its offer in the midst of a bidding war for Warrnambool.  Bega is likely to benefit from rising demand for quality dairy products in China.  Considering the intensity of the bidding war for Warrnambool, Bega could be a takeover target in the future.

Aquila Resources (AQA) is another company whose shareholders watched in delight as takeover bids drove up the stock price.  The company’s has assets in Australia and South Africa with its principal focus on iron ore in West Pilbara and coking coal at Eagle Downs.  On 05 May Chinese Steel Manufacturer BaoSteel and Australian rail infrastructure provider Aurizon Holdings (AZJ) made a joint bid to take control of Aquila for about $3.40 per share.  Predictably, the share price rocketed.  Here is a price chart showing the rise.

Mineral Resources (MRL) briefly dampened investor euphoria when it acquired a 12.8% interest in AQA, but the potential bidding war ended when MRL later sold its stake to the joint bidders, BaoSteel and Aurizon who ultimately completed the deal on 17 July. 

Challenger Group (CGF) is an investment management company that should please investors looking to benefit from long term trends.  The company specialises in retirement income products, controlling about 80% of the existing annuities market.  Challenger recently took over the defined benefit pensions operations of an as yet unnamed large European financial institution. 

Challenger’s growth estimates are modest when compared to some of the other top performing stocks in the table, but for the risk averse, CGF could represent a buying opportunity.  The current P/E of 12.23 compares very favorably with the P/E for the financial sector of 16.29.  The company’s Half Year 2014 earnings release provides what might be the most compelling argument for investing in Challenger.

Normalised NPAT was up 10% while statutory profit dropped, but the number that should excite investors was the record rise in retail annuity sales – 38%.  Total annuity sales for the period were $1.75 billion, while the record retail sales were $1.46 billion, up 38%.  The company reports that lifetime annuity sales for the first half of 2014 exceeded total sales for the entirety of FY 2013.  The share price is up close to 140% over two years.  Here is the chart.

G8 Education (GEM) came into existence as a result of a March 2010 merger uniting Early Learning Services Limited with Payce Child Care Pty Ltd.  The company provides development and educational child care services across Australia and in Singapore through branded corporate owned and franchise centres.  The company has pursued an ultra-aggressive acquisition strategy, growing to more than 340 centres today.  Investors have been well rewarded as the share price growth has been nothing short of phenomenal.  Here is a five year chart for G8 Education.

The company’s handsome dividend yield of 3.5% is fully franked.  Dividends have grown from $0.04 in FY 2011 to $0.12 in FY 2013.  With a 62.5% earnings growth forecast over the next two years and a 52.5% dividend growth forecast over the same period, it would seem GEM still has room to run.  Estimates of the number of long term day care centres in Australia top out at about 4,000 and G8 reportedly has a current market share of only 5%.

Slater & Gordon (SGH) is a consumer law firm with about 70 offices across Australia and another 12 in the United Kingdom.  SGH is already the largest PI (Personal Injury) law firm in Australia and is expanding its practice into other areas through acquisition as well as through organic growth.  The firm has already branched out into compensation law, criminal law, family law, conveyancing, and estate planning and probate.

The firm began trading on the ASX on 21 May 2007, closing its first day of trading at $1.16.  The share price plodded along until 30 January 2012 when the firm announced it was entering the UK legal market.  Here is a price movement chart for Slater & Gordon since it came on the ASX.

Aveo Group (AOG) had been a diversified property company operating as FKP Property Group. On 9 August 2013 the company adopted the name Aveo Group and announced it would continue its strategy of focusing exclusively on developing its retirement village portfolio, divesting itself of all other holdings.  The move had been under consideration since early in 2012 with asset sales beginning in October of 2012 and proceeding slowly.  A successful capital raise beginning in October of 2013 saw the share price begin to rise.  Here is a one year chart for AOG.

Company

(CODE)

Sector

Market Cap

Current Share Price

Midpoint % Increase

Forward P/E

2 Year Earnings Growth Forecast

Dividend Yield

2 Year Dividend Growth Forecast

5 Year  Total Share-holder Return

Northern Star Resources

(NST)

Materials

$741m

$1.73

+116.2%

6.18

+126.8%

2.1%

+96.9%

+148%

Western Areas

(WSA)

Materials

$1.2b

$5.03

+99.6%

13.24

+255.4%

0.4%

+100.8%

-1.9%

Domino’s Pizza

(DMP)

Consumer Discretio- nary

$1.8b

$21.05

+97.8%

32.38

+24.9%

1.6%

+23%

+49.1%

Indepen- dence Group

(IGO)

Materials

$1.1b

$4.79

+93.4%

10.64

+101.8%

1.0%

+140.2%

-1.0%

Bega Cheese

(BGA)

Consumer Staples

$751m

$4.93

+89.9%

19.72

+17.3%

1.6%

+15.5%

Aquila Resources

(AQA)

Materials

$1.4b

$3.39

+89.9%

+5.3%

-5.8%

Challenger

(CGF)

Financials

$3.9b

$7.66

+81.3%

12.35

+4.7%

3.0%

+21.2%

+28.5%

G8 Education

(GEM)

Consumer Discretio- nary

$1.3b

$4.43

+86.2%

16.4

+62.5%

3.5%

+52.5%

+127.1%

Slater & Gordon

(SGH)

Consumer Discretio- nary

$1b

$5.16

+85.6%

14.74

+20.9%

1.4%

+13.5%

+27.5%

Aveo Group

(AOG)

Real Estate

$1b

$2.08

+84.3%

18.91

-18.9%

1.2%

+148.9%

-2.1%

 

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