Top Ten/Bottom Ten stock performance lists that appear at regular intervals during the trading year are generally a good place for stock-pickers to look for stocks on the move, one way or the other. The latest list available is for the first quarter of 2016 and there are seven stocks among the 20 that changed direction during the quarter. On the closing day of the quarter five were down year over year by more than 10% yet posted share price gains ranging from 33% to 62% during the quarter. Two were positive year over year by more than 20% yet saw share price declines during the quarter of around 26%.
Defining trend reversals with charts, lines, graphs, and other technical tools is best left to the technicians; but to the average retail investor three months can be a reasonable period to spot and study a directional change in share price movement. So here we have seven stocks that changed course. Why? It’s possible the shift was due to a short-term catalyst of some kind; but it is also possible the move is due to some change in the fundamental story of the stock, positive or negative.
The following table includes the stocks that surprised in Q1. A year over year price movement that ran contrary to the quarterly movement is the measure of interest. Also, we looked at how each stock price has performed since the beginning of Q2, granted that we are only talking about three weeks.
Primary Health Care (PRY) and Mesoblast Limited (MSB) have gone cold in the early days of the Q2 while Beach Energy (BPT) is still moving up, but at a slower pace. Sirtex Medical (SRX) and IPH Limited (IPH) appear to have returned to form, as the share price of both has turned positive again.
The two of greatest interest are Mineral Resources (MIN) and South32 (S32), both of which remain on fire.
Let’s begin with the two healthcare stocks whose share prices have once again begun to fall. Here is a chart comparing Primary Health Care and Mesoblast.
Primary Health Care has been under the microscope of short sellers and worried investors since it became clear the government was ready to make changes to the Medicare Benefit Schedule. Once the news of the 23 procedures to be removed came out in December of 2015 a few good things began to happen to put some spark back into PRY After basically treading water through January, Primary’s Half Year Results were positive, showing a 28.5% increase in profit as well as a reduction in debt. The company has sold off assets and the Chinese based Jangho Group acquired an 11.17% stake in Primary. However, the catalytic effect of these events may not be able to compensate for the cold hard truth that analysts see the company’s reported earnings of $0.54 per share (EPS) for FY 2015 dropping to $0.22 in 2016 and to $0.21 in 2017.
Mesoblast is one of those Biotech’s that attract investors like flies to honey, despite the challenging task of understanding exactly how these companies are going to do what they are planning to do. Mesoblast operates in the “regenerative medicine” space, or stem-cell treatments. The company’s stem-cell based platform technologies include Mesenchymal Precursor Cell (MPC), Dental Pulp Stem Cells technology; and expanded Hematopoietic Stem Cells technology. Mesoblast Investors reading that and the number of treatable diseases are duly impressed, forgetting the complexity of the technology, the cost of development, and the hard truth that wonder drugs and treatments do not always work.
Mesoblast has attracted some partners and is now generating revenue but has yet to show a profit. The positive earnings growth forecast represents a “bad to less bad” scenario, with losses in EPS shrinking but still losing.
In some ways Mesoblast investors and investors in Sirtex Medical share something in common. Sirtex investors have been drooling over visions of dollar signs stemming from the company’s SIR-Spheres microspheres based treatments for liver cancer. This is another complex technology with promise, but clinical test failures come at a high price for investors. The share price was ravaged in March of 2015 when a liver treatment did not meet its clinical trial objectives.
Unlike Mesoblast, Sirtex is currently profitable and has positive EPS forecasts for the next two years. The Half Year results released in February showed a 46% profit increase, but investors saw that as evidence of the boost from the lower Australian dollar, as sales actually declined. Both of these companies have rewarded patient investors over time, despite the short term swings. The following chart shows the share price performance of both dating back to entry on the ASX.
Given the cratering of the price of oil it is little wonder Beach Energy (BPT) has seen its share price suffer year over year. The catalyst that boosted the company in the other direction was the finalization of Beach’s acquisition of Drill Search Energy on 1 March. The potential deal was announced back in October of 2015, giving the share price a much needed bump. Beach is now the largest on-shore oil producer in Australia. The company reported an EPS loss of $0.208 in FY 2015 but is forecasted to rebound to $0.004 in 2016 and to $0.046 in 2017. Here is a one year price movement chart for Beach.
IPH Limited (IPH) is an intellectual property law firm that listed on the ASX in November of 2014, with a first day closing price of $2.94. The company operates throughout the Asia Pacific region. The share price was up 200% from its first trading day by February of 2016 when the company’s Half Year 2015 Results disappointed investors and the price dropped from an all-time high of $9.14 to $6.68 in a matter of days. IPH has embarked on an aggressive acquisition strategy in the region and so far has avoided the mistakes made by other ASX listed legal firms, Slater and Gordon (SGH) – down 95% year over year – and Shine Corporate (SHJ) – down 56%. The following chart compares the price movement of IPH against SGH.
Strangely enough, the two stocks with the most impressive numbers are both involved in the beleaguered metals and mining sector. Mineral Resources (MIN) handles a variety of operations for mining companies, including crushing, processing, and ports and rail logistical services, as well as operating its own mines.
South 32 mines alumina, bauxite, coal, manganese, silver, lead, zinc and nickel here in Australia as well as in South America; and manganese, coal, and aluminum in Africa. The company was spun off from BHP Billiton (BHP) and began trading on the ASX less than a year ago on 18 May. The closing price on its first day of trading was $2.05.
The company’s impressive increase in share price in Q1 could be attributed in part to rising commodity prices, but it seems management’s plans to restructure and cut costs is what could be a more likely cause. South 32 management stated a goal of reductions in capital expenditure by US$218m along with another US$300m savings in controllable costs.
As is sometimes the case with spin-offs, the “child” outperforms the “parent.” Here is a one year chart for South 32 compared to BHP.
Mineral Resources is well diversified, operating in iron ore, lithium, and manganese. The company operates across 26 sites and for several different commodity types, including iron ore, lithium and manganese. Mineral Resources’ share price took off following a less than stellar Half Year Result. Revenues dropped 23% and profit slipped by 4.8%, but considering the depressed commodity prices in 2015, investors appeared satisfied. What got everyone’s attention was the solid performance of the company’s mining services sector and very impressive cost reductions and productivity increases in all of its operating divisions. In addition, the reported profit included a one-off write down, without which the net profit from ordinary activities actually rose 259%.
For FY 2015 Mineral Resources reported EPS of $0.083. The forecast for FY 2016 is $0.498 followed by $0.36 in FY 2017.