Martin Roth - Top Stocks 2019: A Sharebuyers Guide to Leading Australian Companies

Martin Roths

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-fifth edition first published in 2019 by Wrightbooks
an imprint of John Wiley & Sons Australia, Ltd
42 McDougall Street, Milton Qld 4064

Office also in Melbourne

First edition published as Top Stocks by Wrightbooks in 1995

New edition published annually

Martin Roth 201 9

The moral rights of the author have been asserted

ISBN: 9780730363927 (pbk.)
9780730363958 (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 monsitj / Getty Images

Charts created using TradeStation TradeStation Technologies, Inc. 20012015. 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 on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where 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.

This latest edition of Top Stocks arrives at a time when many investors are concerned about the direction of the stock market. Reasons for a potential fall possibly a big fall seem to abound.

Political instability is on the rise and trade wars could be looming. There are renewed concerns about the Euro and about Brexit. House prices are falling in Sydney and Melbourne. Interest rates might start to rise. There are fears that the US, or indeed the whole world, could fall into recession.

Top Stocks is written for times such as these, when the future is cloudy. Because, no matter the direction of the stock market, numerous fine companies continue to emerge in Australia, offering investors great potential. Top Stocks 2019 showcases many such companies.

They are often smaller to medium-sized corporations. Some will be unfamiliar to investors. But all meet the stringent Top Stocks criteria, including solid profits and moderate debt levels.

Of course, such stocks could not withstand the tidal wave of a substantial market sell-off. They too would be affected. But they should be affected less. And if they are good companies they will continue to thrive and to pay dividends. And they will bounce back faster than many others.

This is the 25th annual 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.

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. The authors own personal views count for nothing. In addition, share prices have never been relevant.

Of the 95 companies in Top Stocks 2019 four more than in last years edition fully 74 reported a higher after-tax profit in the latest financial year (June 2018 for most of them), including 44 that achieved double-digit profit growth. In addition, 71 achieved higher earnings per share and 69 paid a higher dividend.

And though, as I wrote above, share prices are not relevant for selection to Top Stocks , more than half the 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 a five-year period.

Each year I try to identify trends among the companies of Top Stocks. As this book was being written the dollar was weakening. This will benefit exporters and companies with extensive overseas business.

Investors have on occasion been sceptical about Australian companies taking a big plunge into offshore activity, believing that such moves have a high chance of failure. These doubts have sometimes proven correct. Some local corporations, successful at home, have done poorly abroad. Look at Wesfarmers and its disastrous Bunnings UK venture. But others have performed very well, including some that are in Top Stocks .

For investors interested in this theme, here are companies in Top Stocks 2019 that generate a substantial amount of their revenues abroad. Do note, however, that this does not automatically mean they are beneficiaries of a weaker dollar. Some have in place a hedging program or some other arrangement that limits the potential gains from a weak dollar.

• ALS provides laboratory analysis services around the world, with nearly 70 per cent of revenues from abroad.
• Altium is a high-tech company that conducts most of its activities overseas.
• Ansell is a global leader in safety and healthcare products, with 85 per cent of sales overseas.
• ARB exports its automotive accessories to more than 100 countries, with overseas business accounting for more than a quarter of total sales.
• BHP Billiton is a huge diversified resources company with activities and sales around the world.
• Blackmores has a growing business selling its healthcare products to Asia, and this business now represents around 40 per cent of company turnover.
• Breville Group sells its home appliances in more than 65 countries, with foreign revenues now comprising about 80 per cent of the total.
• Cochlear derives about 90 per cent of the sales for its ear implants from overseas customers.
• Codan sells its metal detectors and high-frequency radios to more than 150 countries, representing 85 per cent of company turnover.
• Corporate Travel Management derives more than 70 per cent of its revenues from overseas activities.
• Evolution Mining sells its gold on the international market.
• Flight Centre gets around 45 per cent of its income from its overseas branches.
• Hansen Technologies is rapidly expanding its billing services overseas, and this business now represents more than 80 per cent of total income.
• Harvey Norman reported in its June 2018 financial results that 22 per cent of its profits derived from its 89 overseas stores. It plans 18 more offshore stores over two years.