With October behind us now, quite a number of ASX 100 companies hit new yearly highs in a month that many investors regard as one when stock markets go down and market crashes occasionally occur.
The big four banks plus Suncorp (ASX: SUN) and Bank of Queensland (ASX: BOQ) all had highs within the last week of October. Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC) and ANZ all are still above their pre-GFC highs.
Since a large percentage of the ASX 100 market capitalisation is composed of banks, it's no wonder that the S&P ASX 100 Index (ASX: XTO) is making a new yearly high itself. To get the index to hit all-time highs, the big mining companies Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) will have to get out of the mining downturn because they make up about 12% of the ASX 100 index.
The housing industry uptick has been good for James Hardie (ASX: JHX) and Adelaide Brighton (ASX: ABC), both building materials producers, as they have returned to 2006-2007 price levels. Should the property market improve at a steady pace without becoming a bubble, then these two companies stand to benefit from the expected housing construction expansion.
Online job classifieds service provider Seek (ASX: SEK) set a new high of $13.15, following a net profit after tax (NPAT) gain of 39.8%, from $109.2 million to $152.7 million. It has a price-to-earnings (PE) ratio of 31, identical to its five-year average annual earnings growth rate, so it may not be that much of a premium to pay for it if that rate can be maintained.
Another one to soar to new heights is Flight Centre (ASX: FLT). It is expanding its franchise model to attract independent and rival agencies, and is moving from strength to strength with its online flight and holiday booking system. The higher Aussie dollar boosts customer numbers since they have more purchasing power overseas with a strong currency.
Foolish takeaway
Stocks hitting new highs doesn't always mean that they are too expensive. Their recent successes may have propelled them or their industry is going through an upturn and they are lifted with tide. This is when your research and stock-picking skills come into play.
Can they uphold the current growth pace? Has the market fallen in love with them, and driven the share price to ridiculous levels? Is the business cycle turning, signaling greater returns ahead? Look at the individual companies, note their past performance and profit and return on equity levels. It doesn't predict the future, but it helps you make more informed decisions on what the company could be worth in three to five years or more.
Take the time to consider these, and your portfolio will reward many times over.
