US markets in the first two weeks of 2016 suffered the worst performance in history, and the ASX 200 lost $50 billion in market value in the first three trading days. For stock pickers, the investing adage “the strong get stronger’ should be top of mind going into 2016.
This is the rallying cry of the “buy high, sell higher” crowd, who believe stocks in strong uptrends tend to stay strong or get stronger. To that end we looked at the list of Top Ten Performing Stocks from the ASX 200 for the 2015 trading year.
Another investing maxim – past performance is not an indicator of future performance – led us to cull the list with a tough criterion of a minimum 50% two year earnings growth estimate. Here are the five stocks that survived the cut.
APN Outdoor (APO) debuted on the ASX on 11 November 2014, opening at $2.75 and closing its first trading day at $2.60. The company is in the outdoor advertising business and was separated from its parent, APN News and Media (APN), in 2013.
APN Outdoor claims to be the leading outdoor advertiser in Australia and New Zealand, offering customers a choice of digital or static billboards, and advertising in transit, rail and airport locations.
APN Outdoors’s first Financial Report release for FY2014 was less than spectacular, with an 11% increase in revenue but a reported loss of $12.8 million. In contrast, the Half Year 2015 results reported on 25 August sent the share price substantially higher. For the period APN saw a 25% increase in revenue and a staggering 447% rise in net profit after tax (NPAT). Guidance released at that time was positive and the company raised it again in October.
APO may claim to be the leading outdoor advertising provider but it has a worthy competitor in smaller rival oOh!Media Ltd (OML). Out of Home Media has a market cap of $645 million and is not in the ASX 200. They provide similar services as APN in both Australia and New Zealand. The company was listed on the ASX but was acquired by Champ Private Equity, and then returned to the ASX on 17 December 2014, closing its first trading day at $1.87. The current share price is $4.31, a 123% year over year increase. The following chart compares the share price movement of these two promising stocks.
Mayne Pharma Group (MYX) is a specialty manufacturer of pharmaceutical products, both branded and generic, for distribution in Australia and the US. Mayne Pharma uses its expertise in oral drug delivery technology on its own therapeutic treatments as well as for other providers on a contract basis.
Mayne is aggressively pursuing an expansion strategy in its US operations, which appears to have delighted investors. In 2014 the company acquired six branded products from US based Forest Laboratories Inc., and in 2015 it acquired Doryx™ – a treatment for severe acne – from one of its US partners, Actavis. The company’s most recent financial results were less than stellar, but appears on track with its US plans and now has 17 products filed with the US FDA (Food and Drug Administration) with another 13 soon to be filed. Management expects a combination of the recent acquisitions along with new product launches and growth in its contract services business to result in significant growth in FY 2016. In FY 2015 Mayne reported EPS of $0.019, which is forecasted to more than double in FY 2016 to $0.051.
The top performing stock on the ASX in 2015 was health product provider Blackmores Limited (BKL). The company supplies both animal and human vitamins and nutritional supplements said to be “natural” and healthy. One of the many long-term trends in healthcare is the desire for healthier foods and food supplements. The company derives the majority of its revenue in Australia but has operations throughout Asia.
Here is BKL’s price movement over the last two years.
The company’s Forward P/E of 30.15 is well below the current Sector P/E for Household and Personal Products at 39.15. Note also the low P/EG and respectable 5 year forecasted P/EG.
The P/EG is a favorite metric of many investors since it includes a company’s rate of earnings growth, rather than just prior earnings. Sceptics claim the measure becomes less meaningful if the calculation of the P/EG uses historical growth rates when a company’s future growth rate may be slowing. You can see every one of these stocks has a P/EG under 1.0 – the gold standard of many investors. In addition, the two year growth forecasts show no signs of slowing. However, growth rates over five years make APO the most attractive, with Blackmores not far behind. As any investor who has been around for a while knows, five years can be an eternity in the stock market, so projections that far out can be equally misleading.
Blackmores has the tailwinds of the better health movement behind it and now the company is ready to launch baby formula here and in China, in partnership with Bega Cheese (BGA). Currently the major providers of baby formula are Bellamy’s Australia (BAL) and A2Milk (A2M). Some analysts claim both companies are struggling to keep up with the demand in Australia. Here is a price movement chart for those two companies.
Bellamy’s is up about 650% year over year and earnings per share are expected to more than double from FY 2015 EPS of $0.109 to $0.235 in FY 2016. Bellamy’s focuses exclusively on infant and toddler organic food and formula products. Bellamy’s is now opening offices in Singapore, Shanghai, and Hong Kong to better meet the demand in Asia, which is reportedly huge. Chinese mothers are apparently wary of their own food producers after a growing number of food safety scandals have come to light over the past few years.
Blackmores could benefit handsomely from expanding in China. The company also pays a small dividend but the FY 2015 dividend of $2.03 per share is expected to more than double in FY 2016 to $4.58 per share.
Treasury Wine Estates (TWE) is getting a healthy boost from the low Australian dollar. The company has substantial operations in the US, benefiting from the favorable exchange rate as every US dollar earned returns $A1.43 here. In addition, wine made here in Australia and exported also benefits from favorable exchange rates in many corners of the world. TWE exports to more than 70 countries. The company manufactures and sells 12 unique brands in the Americas; one in Europe; and 36 in Australia and New Zealand.
In October of 2015 the company went through a capital raise to fund the acquisition of the UK and US wine assets of international beverage manufacturer Diageo. Some analysts predict the acquisition could lead to double digit earnings growth by FY 2017. For FY 2015 TWE’s reported EPS was $0.127, with a FY 2016 forecast of $0.266 and $0.325 by 2017. On 22 January TWE raised its FY 2016 earnings forecast to between $140 and $150 million, substantially higher than the analyst consensus of $120 million. Investors liked what they heard. Here is a five day price performance chart showing the move.
The final stock is gold miner Northern Star Resources (NST). NST has an attractive dividend yield with substantial growth expected. In FY 2015 the company paid a dividend of $0.05 per share which is expected to balloon to $0.173 by FY 2017.
Gold has always been an investor safe haven in stormy times, often dragging the price of gold miners along for the ride. Here is a one month price movement chart for gold.
Now here is a one month chart for the ASX 200.
This suggests risk for investing in NST should global markets recover. However, Northern Star has been one of the most resilient miners in the world over the last 5 years, which have not been good for the price of gold. The following chart compares the five year price performance of Northern Star compared to our largest gold miner, Newcrest Mining (NCM) and the ASX 200 XJO Index.
Finally, here is five year chart for the price of gold.