In looking for stock winners, I start off with previous winners with good track records and see if the story has changed or improved for them. For example, if you want to know who the fastest runners or best golfers in the world are, you would start off with the fastest runners and the best golfers from last year. Winners usually keep on winning.
These two companies are known for their success. Their opportunities to generate higher earnings are good over the short to medium-term. Winning in business can be more like a marathon than a sprint.
Super Retail Group Limited (ASX: SUL) is recovering from a share price drop in January, when it released a trading update. It stated gross margin in its leisure division was below expectation and new IT system issues were impacting business. The retailer operates such stores as Supercheap Auto, BCF, Amart Sports and Rebel Sports.
The sports division had the best like-for-like sales, compared with its Supercheap Auto and leisure divisions in H1 2014. At the same time, it is expanding its warehousing and distribution capacity. Business efficiencies will create cost savings.
With general retail trade starting to improve, the company may be able to make up ground. It could be affected by further weakening of the Aussie dollar since it imports some store goods.
Macquarie Group Ltd (ASX: MQG), the investment bank, had a good year in FY2013, when net profits rose 14.4% to $872 million. Its FY2014 half-year report also had profit up significantly compared to 1H 2013.
It is increasing its market position in the residential home loan business, taking advantage of the rising housing market. Corporate activity like capital raisings and IPOs are on the rise, so the financial services it provides will be in greater demand.
Its financial year ends in March, so we will soon find out the full-year results. The financial markets and general economy are showing some positive signs of growth, so if those continue to improve, the company has good opportunities to move forward.
In a February operational briefing, its outlook was for FY2014 to have an improved result on FY2013 and the second-half result will be stronger than the first half.
Foolish takeaway
Predicting what a company's results will be for the next half year or full year is very difficult, even for analysts. Sometimes companies, like athletes, can have a bad season, yet if the issues are short and temporary, they could be back in great form.
Super Retail Group is bedding down recent acquisitions and implementing new systems, but eventually they will be resolved. The economy is getting better, so shoppers should find their way back into the stores as consumer sentiment improves.
Macquarie Group is the kind of company that can grow quicker than the pace of a rising economy. In up markets, more investments and business deals are done, so its services will be in demand. The residential mortgage business will be a big plus as well.
