Unless you are undertaking short selling operations in your portfolio – in other words taking a position to benefit from a fall in price – then the aim of your game is to identify companies with good prospects and growing earnings.
Two stocks growing their EPS
Two stocks which are forecast to grow their earnings per share (EPS) at double digit rates in the current 2015 financial year (FY) are Brickworks Limited (ASX: BKW) and Bradken Limited (ASX: BKN).
Brickworks is a well-managed company with a diverse earnings base thanks to its cross-shareholding structure with Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Its primary operating business of manufacturing bricks is currently enjoying a tailwind which should only get stronger in the coming year as new housing starts increase.
Meanwhile, Bradken has been affected by a weak resource sector which has dampened demand for its products and services. As Bradken's operations are actually skewed towards production rather than exploration there is reason to have confidence that Bradken's business model is more sustainable than other firms exposed to the resource sector. It's also possible to have confidence in estimates that earnings should rebound in the coming year.
And two to avoid
The retail sector is one space where businesses look to be facing an uphill battle. Breville Group Ltd (ASX: BRG) gave investors a shock recently when it released full year results showing a small decline in earnings and forecasting a "challenging and increasingly competitive" FY 2015.
Myer Holdings Ltd (ASX: MYR) shares have enjoyed a resurgence of nearly 20% in the past three months, yet this is despite any significant signs of a pick-up in consumer spending activity. The past few years have seen a marked increase in competition within the retail sector as numerous international chains enter the domestic market. Myer looks like it will have to run quickly just to stand still.
