The new financial year begins next week, and we'll be talking about forecasts and earnings for 2016 soon.
Of course, we still have most companies' reporting their full year 2015 results in August 2015 to look forward to, but most surprises should already be out of the way.
REA Group Ltd (ASX: REA), Seek Limited (ASX: SEK) and Flight Centre Travel Group Ltd (ASX: FLT) have already seen their share prices crunched after announcing weaker than expected profit updates. Lucky me – I hold all three companies in my self-managed super fund.
Anyway, here's my top 5 stocks I'll be watching over the next 12 months.
Macquarie Group Ltd (ASX: MQG)
Australia's home-grown investment bank has put the disappointing few years behind it and looks headed for a record result in August, and that could continue into the new financial year. As colleague Brendon Lau outlined here, Macquarie is growing a diversified portfolio of low-risk infrastructure assets alongside its traditional investment and domestic banking businesses.
CSL Limited (ASX: CSL)
The blood plasma product supplier has delivered strong growth over the past few years and appears able to continue doing do for the foreseeable future. Currently trading on low forecast P/E ratios in the low 20's, now could be the perfect time to take a closer look at the company I regard as the best on the ASX.
REA Group Ltd (ASX: REA)
It's not often you get to pick up a quality company at a cheap (ish) price. From a share price north of $50, REA Group dropped 6% in early May, after reporting its third quarter results. Investors were clearly disappointed with the realestate.com.au owner as we noted here. Before the fall, shares were changing hands at 42x 2014 earnings, but at current prices, sport a prospective P/E ratio of just 22.5x for the 2016 financial year.
Ramsay Health Care Limited (ASX: RHC)
Another company priced for perfection and trading on a trailing P/E ratio of 38.9x. The private hospital operator has seen its shares pull back from a recent high of $69.22 to trade around $62.10. But given the company's quality and portfolio of defensive assets and the tailwinds from an ageing population, today's price may well be an opportunity.
Telstra Corporation Ltd (ASX: TLS)
The giant telco may look expensive at $6.21 representing a P/E ratio of 16.7x, and its fully franked trailing dividend yield below 5% – it's actually at 4.8%. I'll be keen to see how Telstra's mobile division – the largest contributor to earnings – is travelling and whether competitors Vodafone and Optus are making any indents in Telstra's market share. I'll also want to see how some of the company's smaller, but fast-growing divisions are travelling. They could deliver a surprise packet when the company reports in August.
Foolish takeaway
Warren Buffett learnt from partner Charlie Munger that it pays to pay up for quality early on in his investing career, modifying his investing strategy slightly. I too have realised that it's better to pay up for quality than it is to chase turnarounds, net asset plays or gold stocks.
I'd love to own all five of these companies in my SMSF, one day I probably will. I recently added REA Group, now all I need is the market to take a dim view of Macquarie and Ramsay.
