It is going to be another long and painful day for shareholders of resource and energy companies as global commodity prices continue to plummet.
Although it would be tempting for investors to think that this may be the bottom of the cycle, the truth of the matter is there are few (if any) people who can actually predict where commodity prices are heading.
Sure, commodity prices are at multi-year lows but that doesn't mean they can't go even lower. Supply and demand are the key drivers for commodity prices and unless both sides of the equation change dramatically, it is unlikely that commodity prices will be changing direction any time soon – and that is the major problem facing mining and energy companies – they are price takers instead of price makers.
With that in mind, here are three companies that might be a better alternative to the miners and drillers:
1. Retail Food Group Limited (ASX: RFG) – The company is Australia's leading multi-food franchise operator and the country's largest coffee roaster. It provided a bullish trading update at its recent AGM where it confirmed it remains on track for underlying earnings growth of around 25%. Retail Food Group also confirmed it has started FY16 strongly with a higher than expected number of new outlets being opened both domestically and abroad. Sales are also tracking broadly in line with expectations although fierce competition and discounting in the pizza segment has caused a 0.9% decline in same store sales in this segment for the first quarter. Despite this, Retail Food Group is trading at less than 11 times forecast FY16 earnings and investors are likely to receive a fully franked dividend yield of 5.5%.
2. BigAir Group Limited (ASX: BGL) – BigAir owns and operates Australia's largest metropolitan fixed wireless broadband network as well as offering cloud and network based services to businesses. BigAir also operates a Community Broadband business that provides centrally managed internet and WiFi solutions for businesses like hotels, universities and shopping centres. It has a strong track record of increasing revenue and earnings with a compound annual growth rate of 53% and 24% respectively. BigAir has been successful in securing new contracts recently and although the company has not provided any specific earnings guidance, it is likely to deliver another year of strong earnings growth. Although the share price has weakened recently, I think any further weakness could present a good buying opportunity.
3. Corporate Travel Management Ltd (ASX: CTD) – The shares might be trading at a significant premium to the broader market but the travel management solutions company has proven it can deliver above average earnings growth with a compound annual growth rate of 33.4% since 2010. At its recent AGM, Corporate Travel confirmed it was trading at the top end of its profit guidance primarily as a result of increasing market share in all the regions it currently operates in. In addition to this, it carries no debt and has over $40 million in cash that it has available for future acquisitions. Although Corporate Travel shares are currently trading at more than 38x FY15 earnings, the company is on track to deliver earnings growth of around 30% for FY16 – well above the broader market average.
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