Top Stocks
TOP STOCKS
TWENTY-SECOND EDITION
2016
A SHAREBUYER'S GUIDE TO
LEADING AUSTRALIAN COMPANIES
MARTIN ROTH
The author and publisher would like to thank Alan Hull (author of Active Investing, Revised Edition, Trade My Way and Invest My Way; www.alanhull.com) for generating the five-year share-price charts.
This twenty-second edition first published in 2016 by Wrightbooks an imprint of John Wiley & Sons Australia, Ltd
42 McDougall Street, Milton Qld 4064
Office also in Melbourne
Typeset in 10/12 pt Adobe Caslon Pro, by Aptara, India
First edition published as Top Stocks by Wrightbooks in 1995
New edition published annually
© Martin Roth 2016
The moral rights of the author have been asserted
ISBN:
9780730320562 (pbk.)
9780730320579 (ebook)
All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All enquiries should be made to the publisher at the address above.
Cover design: Wiley
Cover image: Financial Chart © istockphoto.com/Petrovich9
Charts created using TradeStation © TradeStation Technologies, Inc. All rights reserved. No investment or trading advice, recommendation or opinions are being given or intended.
Disclaimer
The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.
Preface
Our stock market is volatile, the currency is weak and there is talk that the country might fall into recession. Yet this new edition of Top Stocks presents as many exciting companies as I have seen in 22 years of compiling this book.
Most of these are smaller or medium-sized companies. Some will be unfamiliar to investors. Yet all meet the stringent Top Stocks criteria, including solid profits and moderate debt levels.
Here are just five examples, all companies that have never previously appeared in the book. (Interestingly, four are based in Brisbane.)
• Corporate Travel Management. A series of offshore acquisitions – with more possible – have transformed this company into a global business. Profits rose 66 per cent in June 2015, and the company's forecast is for a further 25 per cent to 30 per cent increase in the June 2016 year.
• ERM Power. In a highly regulated industry, electricity provider ERM is realising solid growth, thanks to an emphasis on reliability and service to its corporate customers. It has moved into the US market and believes it can replicate its success there.
• GBST Holdings. Surging British demand for the company's financial software saw profits up 52 per cent, and growth continues.
• Magellan Financial Group. Funds management operation Magellan has achieved renown for its international funds, at a time when demand for these is growing among Australian investors. Profits more than doubled in the June 2015 year.
• Vita Group. This specialist retailer of mobile phones and computers is enjoying excellent growth as it opens new stores and diversifies into fresh areas of business. Profits more than doubled in June 2015.
As noted above, this is the 22nd edition of Top Stocks, and guiding investors towards value stocks has been one of the paramount aims of the book from the very first edition. Indeed, one of the rationales for the book has always been to highlight the truth that Australia boasts many excellent companies that enjoy high profits – and growing profits – regardless of the direction of the markets.
Despite the title, Top Stocks is actually a book about companies. So right from the start it has been an attempt to help investors find the best public companies in Australia, using strict criteria.
These criteria are explained fully later. But, in essence, all companies in the book must have been publicly listed for at least five years and must have been making a profit and paying a dividend for each of those five years. They must also meet tough benchmarks of profitability and debt levels. It is completely objective. My own personal views count for nothing. In addition, share prices have never been relevant.
Of the 94 companies in Top Stocks 2016 – two fewer than in last year's edition – fully 64 reported higher profits in the latest financial year (June 2015 for most of them), while 60 achieved higher earnings per share and 63 paid a higher dividend.
Of the 64 companies reporting higher profits, 46 achieved double-digit profit growth, with four companies reporting a triple-digit increase. In addition, 51 of them saw profits growing at a faster rate than revenues, implying that their profit margins were expanding.
Although, as noted, share prices are not relevant for selection to Top Stocks, 57 of the 94 companies in the book have provided investor returns – share price appreciation plus dividends – of an average of at least 10 per cent per year over five years. In fact, of these 57 companies, more than half have provided a return of over 20 per cent.
And 11 of them – Corporate Travel Management, Greencross, Domino's Pizza, G8 Education, GBST Holdings, Integrated Research, Magellan Financial, Objective Corporation, Sirtex Medical, TPG and Vita Group – have provided an annual average return over five years of more than 40 per cent.
With interest rates low, many investors have been seeking stocks offering high dividend yields. These are still a worthy target, as they should offer a degree of protection if the market is falling.
Two years ago, when investors were looking for smaller companies with high dividend yields, I included a list of smaller companies (having a market capitalisation of below $450 million) with a dividend yield of at least 5 per cent.
There were 22 such companies in Top Stocks 2014. Repeating the exercise last year produced 15 stocks. In this latest edition of the book there are 16.
Dividend yield: small companies
Introduction
The 94 companies in this book have been placed as much as possible into a common format, for ease of comparison. Please study the following explanations in order to get as much as possible from the large amount of data.
The tables have been made as concise as possible, though they repay careful study, as they contain large amounts of information.
Note that the tables for the banks have been arranged a little differently from the others. Details of these are given later in this Introduction.
At the head of each entry is the company name, with its three-letter ASX code and the website address.
Under the company name is a five-year share-price chart, to September 2015, provided by Alan Hull