2015 has seen some interesting winners and losers so far.
Qantas Airways Limited (ASX: QAN) broke its losing streak to become one of the best performing stocks on the ASX – up 188% to $3.54 in the past twelve months. Now there's even talk from CEO Alan Joyce that the company could begin returning funds to shareholders.
Qantas Airways, dividend stock wonder? Who'd have thought it.
There are a lot of reasons to steer clear of this 52-week high, including the fact that much improvement is due to lower oil prices and reduced competition with Virgin Australia Holdings Ltd (ASX: VAH).
To its credit Qantas is working to generate massive cost savings and looks as though it may have some profitable years ahead of it.
However, I do not believe plans to return cash to shareholders are in the business' best interest, not with $3.4 billion of net debt (total debt minus cash, cash equivalents and aircraft security deposits) on the balance sheet.
I also do not think it is a great long-term investing idea, and I believe Qantas shareholders would be better served if they took advantage of high prices to sell down their shareholding.
Although it's only up 5% in the past year, JB Hi-Fi Limited (ASX: JBH) has risen strongly in recent months after the budget announcement and a 3rd quarter sales update that reversed sales lost in the half-year report.
Management expects that sales momentum will continue in the final quarter of the year, which might see JB post 3-4% total sales growth for 2015.
I've been uncomfortable with retail stocks for some time thanks to subdued conditions, but there's no denying JB Hi-Fi has performed well in a tough market and it could be set for a little extra boost after 2015's budget was handed down.
At current prices JB doesn't appear overly expensive, and I believe that it occupies a space somewhere between 'Hold' and 'Buy' depending on your risk tolerance, exposure to retail, and the size of your 'better ideas' list.
Finally Harvey Norman Holdings Limited (ASX: HVN) has jumped nearly 5% today in response to last year's budget, taking it to its highest point all year – a gain of 47%.
With a Price to Earnings (P/E) equation of 21.5 compared to JB Hi-Fi's ~16, Harvey Norman appears to be substantially more expensive than its competitor. Much of this is no doubt due to performance, with HVN growing profits by 27.4% at its most recent half-year report.
Harvey Norman's profits before tax were substantially increased by reductions in franchisee support, as well as increased rent payments and revenues from those franchisees. Now that business conditions have stabilised, HVN doesn't have to offer as much support to franchisees.
However I don't expect these savings to be replicated in the next reporting period, which leads me to suspect that profit growth will also be lower. If profit growth is lower, it will be hard for investors to justify coughing up the extra premium for HVN as opposed to JB Hi-Fi or similar.
And, as Ryan Newman points out in his earlier article, Harvey Norman sales grew 3.4% on a like-for-like basis, which is the same figure that JB Hi-Fi shares have delivered. Based on these factors I'd consider Harvey Norman a 'hold' at the moment.
