Despite the impressive bounce in global equity markets over recent weeks, the short and medium-term outlook for investors still remains under a cloud.
Markets are likely to remain preoccupied with the future direction of interest rate moves in the US, the slowing of China's economy and developments within the Eurozone.
Add to this concerns surrounding commodity prices and subdued corporate earnings growth and it is unlikely Australian investors will see significant gains from the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) for the rest of 2016.
It's not all bad news though. I believe investors still have the opportunity to generate superior returns by looking for fast-growing companies outside of the top 20 stocks of the index.
Although these shares are often considered more risky than traditional blue-chip stocks, they also offer the potential for much higher returns.
As a result, investors who are willing to remain patient and can tolerate a higher level of risk may consider the following four stocks:
Surfstitch Group Ltd (ASX: SRF)
Surfstitch is a leading online retailer of clothing, footwear and sports gear. The company is now the subject of a possible buy-out from private equity and its former CEO Justin Cameron. This all came after the market savagely sold off the shares, despite the company reporting first half sales growth of 40%. While there is the possibility that an offer doesn't eventuate, Surfstitch is still likely to continue on its upward growth trajectory and this means it remains an attractive investment in any case.
Touchcorp Ltd (ASX: TCH)
Touchcorp is a software platform company that provides payment and online security solutions used in the retail, healthcare, government, and telecommunications sectors. While this sounds complicated, essentially the platform enables business to sell non-physical products and services such as lottery tickets, prepaid phone credit and gift vouchers to consumers through an integrated software system. Touchcorp has only been listed for 12 months but is already proving to be a market winner with its maiden full year result beating its prospectus forecast. The company is confident of further growth over 2016 with plans to expand into a number of new international territories.
iSentia Group Ltd (ASX: ISD)
Shares of iSentia were sold off heavily following the release of its first half FY16 results and are now trading nearly 29% below their 52-week highs. Despite delivering revenue and underlying earnings growth of 22% and 19% respectively, some investors were obviously expecting far more from the company as it was trading at a significant premium to the broader market. Following the sell-off, the shares are now trading at around 22x forecast earnings – an attractive level considering the company expects to deliver full year revenue growth of around 23% and earnings growth of around 21.5%.
IPH Ltd (ASX: IPH)
IPH was another stock trading at a large multiple that has been heavily sold down since releasing first half earnings that were below market expectations. The company is the leading intellectual property (IP) services group in the Asia-Pacific region offering a wide range of IP services to Fortune 500 companies and other multi-nationals all the way down to individual clients. With the aid of recent acquisitions and expansion into new markets, IPH delivered FY16 first half revenue and underlying earnings growth of 60% and 75%, respectively. The market may have had higher expectations for the company but the recent sell-off looks overdone, and with the shares now trading at less than 24 times forecast earnings, investors may have been presented with a good buying opportunity.
