As one trading year fades into memory it is a certainty that financial websites everywhere will feature top stock picks for the coming year, gathered from analysts and experts of all stripes.  For investors, the beneficial nature of these lists depends largely on the investing philosophy of the reader.  Investors with low tolerance for risk are not likely to heed a speculative stock idea.  Those who favor bargain stocks are unlikely to pay much attention to advice to buy stocks with high Price to Earnings (P/E) ratios.

However, one common element universally sought by investors is earnings.  The difference lies in how much investors are willing to pay per share and how long they might have to wait for earnings growth.  With that common denominator in mind, we searched Top Ten Stocks for 2015 lists and selected stocks appearing on at least two lists and having two year earnings growth forecasts in excess of 15%.  Here is the table with earnings and share price movement information.  The table is ranked from highest two year forecast to lowest.

Company

(CODE)

Share Price

52 Week % Change

2 Year Earnings Growth Forecast

EPS FY 2014 Actual

EPS FY 2015 Estimate

EPS FY 2016 Estimate

iProperty Group (IPP)

$2.66

+15%

+183.4%

$0.009

$0.027

$0.076

IMF Bentham (IMF)

$2.10

+17%

+86.8%

$0.066

$0.202

$0.229

Origin Energy

(ORG)

$10.53

-24%

+25.2%

$0.643

$0.681

$1.0008

TPG Telecomm

(TPM)

6.57

+21%

+23.2%

$0.216

$0.299

$0.328

Greencross Ltd

(GXL)

$8.65

+2%

+18.8%

$0.322

$0.322

$0.456

Ramsey Health Care (RHC)

$57.58

+32%

+18.2%`

$1.639

$1.926

$2.29

CSL Ltd

(CSL)

$84.44

+19%

+16.7%

$2.857

$3.542

$3.893

Shine Corporate (SHJ)

$2.51

+16.5%

+61%

$0.143

$0.17

$0.194

 

Malaysia based iProperty Group Limited (IPP) reportedly operates the largest collection of property-related websites in Asia, serving both consumers and businesses.  iProperty’s reach extends from Malaysia to Singapore to Indonesia to Hong Kong to the Philippines, with additional regional sites and even its own property video site.  REA Group, our largest Internet based real estate and commercial property operator, has cast its eye towards global expansion.  In mid-2014 REA bought a 17% stake in IPP, later increasing its holdings to 19%; selling its Hong Kong operation to IPP; announcing a marketing partnership between the two companies; and adding its Chief Financial Officer (CFO) to the IPP Board of Directors. That kind of endorsement bodes well for the future of iProperty Group.

In late December 2014 IPP announced it expected a 40% increase in revenues for the latest quarter along with record profits.  Both IPP and REA have seen share price appreciation approaching 150% over the past two years.  REA’s two year earnings growth forecast is 27.7%.  Here is a price chart for the two.

IMF Bentham Limited (IMF) and Shine Corporate Limited (SHJ) both operate in the legal space, but in substantially different ways.  Shine is a law firm specialising in compensation claims, such as personal injury, workman’s compensation, and professional or medical negligence.  Shine went public on 13 May 2013 and the share price has risen 100% since it began trading.  The company is growing its network of law offices through acquisition.

IMF Bentham lends money for litigation purposes here in Australia and in the US.  Once approved, IMF funding can be used to cover preliminary and factual investigations, management and monitoring costs, and settlement facilitation costs.  IMF charges a commission, which in the case of bank fee class action suits now in progress against selected Australian Banks, could amount to $180 million, according to the Sydney Morning Herald.  

Shine reported a 10% revenue increase and a 27% rise in net profit after tax (NPAT) for FY 2014.  IMF saw a 29% drop in NPAT for the year, a cautionary reminder that predicting earnings in litigation cases is problematic due to the uncertain timing of results.  IMF also restricts itself to large scale claims, with a minimum potential value of $5 million, which can take longer to litigate.  Despite the problems with earnings timing, IMF shares are up about 140% over ten years, and 30% over five years.  Here is a share price chart for IMF over ten years and for Shine since it began trading on the ASX.

Origin Energy Limited (ORG) made the Top Ten 2015 lists due to its diversification and the anticipated revenue from the APLNG export project (Australia Pacific LNG), despite the falling price of oil.  However, investors have been fleeing the stock since the price of oil began its dramatic drop.  Note that it is the only stock in our table with negative returns year over year.  Here is a one year chart for ORG.

Origin’s strength lies in its position as an integrated energy provider.  Operations range from gas exploration and production to power generation.  Although the company is not in the oil business, there is concern among investors about the impact of the price of oil on LNG pricing, which in some contracts is linked to the per barrel oil price.  Although not without risk, ORG has a Forward P/E of 12.96 and is trading below its Book Value per Share of $12.18.

TPG Telecom (TPM) offers a wide variety of communication services to a broad customer base.  TPG serves both residential and commercial users as well as wholesale customers.  Commercial users include government entities, SME’s (small and medium enterprises), and large corporations.  

The company has Fiber Optic expertise and is positioning itself to compete with the NBN with its Fibre to the Basement’ (FTTB) approach.  Concern over regulatory issues hit the stock price last November as seen in a six month chart for TPM.

Although the ACCC (Australian Competition and Consumer Commission) ruled in favor of TPM in a matter brought by the NBN, the government stepped in and imposed new regulations on the company’s FTTB products, with a 1 January compliance dated. Initially TPM said it would stop selling the product in 2015 but is now saying its FTTB offerings will be back, although the timing was not specified.

For the Full Year 2014 the company reported a 34% increase in revenue along with a 15% increase in NPAT.

In 2014 Healthcare was the top performing ASX Sector, along with Telecommunications.  The remaining three stocks in our table are all Healthcare providers, although Greencross Vets Limited (GXL) has animals, not humans, as its customer base.  This company now operates more than 100 Vet Clinics across Australia and New Zealand along with more than 120 retail stores for pets.  Greencross began trading on the ASX in 2007 and the share price has risen about 500% since.  However, the share price is down about 15% over six months, following the release of Full Year 2014 results. Here is the chart.

Greencross has been growing through acquisitions but the approximately $128 million dollar loss reported on 29 August 2014 was attributed to an impairment charge when GXL merged with privately owned Mammoth Pet Holdings back in February.  Despite the fact the charge had been pre-announced and revenues for FY 2014 grew 23%, the stock price took a hit.  Without the one-off charges, NPAT was up 45%.

The Pet Care market is estimated at around $8 billion, with GXL currently at 7.5% market share.  The company’s goal is a 20% market share.  With a P/E ratio approaching 25 and a P/B of 2.77, GXL may seem too expensive for bargain hunters.  However, this company has seen average earnings growth of 21.9% over five years and has rewarded its shareholders with an average annual rate of total return over three years of 83.6% and 66.2% over five years.

Human health care providers Ramsey Health Care (RHC) and CSL Limited (CSL) have long been considered by some as over-priced.  Yet both have outstanding long term performance records.  Here is a ten year price performance chart for these two Healthcare juggernauts.

Long term shareholders have seen total shareholder returns over ten years of 25.7% for CSL and 26.3% for Ramsey.  Can they keep going?  With CSL’s P/E at 26.04 versus a Sector P/E of 15.32 and RHC’s at 31.98 versus a Sector P/E of 20.37, are these two stocks at long last truly overvalued?

The demand for Healthcare is going up.  With a robust and strong pipeline of current products and the soon to be launched new haemophilia drug, the future still looks promising for CSL.  In addition, CSL has added the influenza vaccine business from global Pharma giant Novartis, and has invested in increasing its own production capacity.   CSL’s primary business is the development of plasma protein (blood) therapies and vaccines.  The company’s current P/EG is under 2, at 1.56 and the five year expected is at 1.92, making the stock price seem a little more reasonable to the value-minded.

Ramsey Healthcare is a private hospital operator with outlets here, in the UK and France, in Indonesia and Malaysia, and is now entering China.  Ramsey’s Price to Earnings Growth ratios also makes the current share price seem reasonable.  The company’s five year estimated P/EG is 2.10 and the current P/EG is 1.76.  The current P/EG for the ASX is 1.99.

There are three additional stocks that bear mentioning with two year earnings growth forecasts between 10 and 15%:

•    Internet classified advertising provider for the automotive industry Carsales.com (CRZ)  – 14.2%

•    Software solutions provider to the automotive industry Infomedia (IFM) –  14.1%

•    International payment provider OzForex (OFX) – 12.9%.

Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.