Steel, coal, and veterinary services.
It's an unlikely mix but the market has been actively repricing three stocks in these sectors, surprisingly enough in the aftermath of three positive half-year reports.
Let's break it down:
Bluescope Steel Limited (ASX: BSL) has done a fantastic job of turning a struggling business around, lowering gearing and focussing on its core operations to grow profits, which rose 62% on the previous corresponding period.
(Motley Fool contributor Tim McArthur covered Bluescope's most recent results here)
Investors were unimpressed to say the least, and shares have dropped from ~$5.50 to $3.61 as of the time of writing.
I feel that Bluescope's results could be best summed up as 'a pat on the back, followed by a kick in the crotch' with every positive in the reporting being followed immediately by a negative:
'Reported NPAT increased … primarily due to higher spreads, favourable foreign exchange impacts…partly offset by higher costs.'
'Australian Steel Products improved, driven by increased spread, improved product mix…partly offset by higher costs.'
'Second half of 2015 will post underlying earnings up to 20% higher thanks to business growth and a weaker Australian dollar… but recent significant falls in global steel prices will compress margins.'
You get the picture. While Bluescope has done a good job launching a recovery, given a fairly subdued outlook for industrial development – albeit with the potential for low interest rates to trigger a construction boom – I'm not yet confident enough to consider buying into this 52-week low.
New Hope Corporation Limited (ASX: NHC) has the unusual distinction as one of Australia's most profitable coal miners – unusual because 'coal' and 'profits' rarely go together in the same sentence.
Nevertheless management has done reasonably well to post an underlying profit despite tough times in the coal sector. The company also appears to have an eye out for acquisitions, reminding investors that it has the 'financial backing to pursue growth opportunities at a time of declining asset values'.
However the bear case for coal is strong with falling Chinese demand, and New Hope is another company I'm not in a rush to add to my portfolio, ultra-low prices notwithstanding.
Finally however a ray of sunshine, with Greencross Limited (ASX: GXL).
Despite a very strong half-yearly report, Greencross shares have dropped 30% from $9.50 to around $6.71 at the time of writing.
One can only wonder at the motive behind the fall; possibly profit taking because shares looked expensive at $9.50, or perhaps growth was slower than investors had expected.
With strong growth by acquisition and reasonable growth in like-for-like sales both in retail and veterinary services – not to mention massive synergies from cross-selling retail products through vet practices – Greencross looks reasonably priced and positioned to grow.
Importantly dividends are also soaring, with the half-year dividend rising 45% on the previous year, despite equating to a yield of just 1.1%.
Compounded over a couple of years investors could be looking at a very healthy dividend supported by reasonably defensive income streams.
Just ask anyone who invested in Woolworths Limited (ASX: WOW) shares when they first launched; today they're sitting on a yield of over 25% per annum. Talk about good investments!
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