Martin Roth - Top Stocks 2015: A Sharebuyers Guide to Leading Australian Companies

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-first edition first published in 2015 by Wrightbooks
an imprint of John Wiley & Sons Australia, Ltd
42 McDougall Street, Milton Qld 4064

Office also in Melbourne

Typeset in 10/12.4 pt Caslon

First edition published as Top Stocks by Wrightbooks in 1995
New edition published annually

Martin Roth 2015
The moral rights of the author have been asserted

ISBN: 9780730315063 (pbk.)
9780730315070 (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. 20012014. 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.

It was the best of times, it was the worst of times.

The famous opening words of A Tale of Two Cities sum up the frustrations of many investors. The local sharemarket has had a dazzling run, with the benchmark S&P/ASX 200 index up around 40 per cent between June 2012 and September 2014. As a result, large numbers of stocks look to be very expensive. It has become hard for sharebuyers to find companies that appear to offer value. Yet, as I write this, markets keep rising.

In the words of Max Mason, writing in the Australian Financial Review in August 2014:

Finding value in the Australian sharemarket is becoming increasingly like walking a wild path in the Amazon jungle with a machete there's a lot to cut through to find El Dorado. The Spanish conquistadors may never have found the city of gold but there is still a glimmer of hope for local investors if they look hard enough.

This is the 21st 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. Share prices have never been relevant.

Of the 96 companies in Top Stocks 2015 two fewer than in last year's edition 67 reported higher profits in the latest financial year (June 2014 for most of them), while 63 achieved higher earnings per share and 69 paid a higher dividend.

Of the 67 companies reporting higher profits, 43 achieved double-digit profit growth, with four companies reporting a triple-digit increase. In addition, 41 of them saw profits growing at a faster rate than revenues, implying that their profit margins were expanding.

And though, as I wrote above, share prices are not relevant for selection to Top Stocks, fully 64 of the 96 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 64 companies, more than half have provided a return of over 20 per cent.

And fully nine of them G8 Education, My Net Fone, Greencross, Domino's Pizza, Amcom, Breville, Ramsay Health Care, Credit Corp and TPG have provided an annual average return over five years of more than 40 per cent.

But to find such stocks it is probably necessary, as much as ever, that investors are selective in their approach.

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 falls.

However, such stocks have been among the market's best performers. And given that the next move in interest rates could be up even though this might not happen for some time many experts have been advising investors to seek out stocks offering growth.

So here are some companies to consider from the book that have been growing well. Of the 96 companies in this latest edition, 31 have average annual EPS growth over three years of 10 per cent or more. (Note as well that these are historical figures. They do not, of course, mean the growth will necessarily continue. Some companies on the list certainly appear to have stopped growing, at least for the time being.)

Growth stocks

In Top Stocks 2014, with investors looking for smaller companies with high dividend yields, I published a list of smaller companies from the book a market capitalisation of below $450 million with a dividend yield of at least 5 per cent.