Martin Roth - Top Stocks 2020

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-sixth edition first published in 2020 by Wrightbooks

an imprint of John Wiley & Sons Australia, Ltd

42 McDougall Street, Milton Qld 4064

Office also in Melbourne

Typeset in Adobe Garamond Pro Regular 10/12 pt

First edition published as Top Stocks by Wrightbooks in 1995

New edition published annually

Martin Roth 2020

The moral rights of the author have been asserted

ISBN: 9780730372073 (pbk.)
9780730372080 (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 Yurchanka Siarhei / Shutterstock

Charts created using TradeStation TradeStation Technologies, Inc. 20012019. 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.

Economic uncertainty, political instability, trade wars, currency volatility and more seem to be exerting a growing influence on global financial markets. Yet, in the midst of this environment, numerous fine companies continue to emerge in Australia, with great potential for investors.

In Top Stocks 2020 there are 25 new companies, including 18 that have never appeared in any previous edition of the book. This is the second-highest number of new companies in the 26-year history of the book.

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.

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

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.

Of the 105 companies in Top Stocks 2020 10 more than in last year's edition fully 74 reported a higher after-tax profit in the latest financial year (June 2019 for most of them), including 44 with double-digit profit growth and a further three that achieved triple-digit growth. In addition, 73 recorded higher earnings per share and 68 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. The weakening dollar has for several years become a feature of local financial markets. It has benefited exporters and companies with extensive overseas business. Conversely, it can hurt importers.

For investors interested in this theme, here are companies in Top Stocks 2020 that generate a substantial amount of their revenues abroad. Do note, however, that this does not automatically mean that they are beneficiaries of a weaker dollar. Some have a hedging program or some other arrangement in place 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 with most of its activities overseas.
• Ansell is a global leader in safety and healthcare products, with more than 90 per cent of sales overseas.
• ARB exports its automotive accessories to more than 100 countries, with overseas business nearly 30 per cent of total sales.
• BHP Group is a huge diversified resources company, with activities and sales around the world.
• Blackmores is selling a lot of its healthcare products to Asia.
• Brambles, a leader in the supply of pallets for global trade, derives most of its income abroad.
• Breville Group sells its home appliances in more than 65 countries, with foreign revenues about 80 per cent of the total.
• Clover Corporation makes nutrients for food products, with about half of its sales overseas.
• 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.
• Flight Centre gets around half of its income from its overseas branches.
• Fortescue Metals Group sells most of its iron ore abroad.
• Hansen Technologies continues to expand its billing service activities, with overseas business now more than 80 per cent of total income.
• Infomedia has most sales of its electronic car parts catalogues outside Australia.
• Integrated Research's specialised performance monitoring software is mainly sold abroad.
• IPH gets about 35 per cent of its intellectual property services income from its Asian operations.
• IRESS derives more than half its revenues for its financial software from overseas customers.
• Macquarie Group has banking operations in 25 countries, and international business accounts for around two-thirds of total income.
• Mineral Resources is a big iron ore exporter, with much of its income from abroad.