Performance and returns are the name of the game. No matter what stocks you pick or what industries they are in, your portfolio success comes down to how much the stocks can deliver in dividends and earnings growth. Sometimes when I come across a new company, before I find out what it does or what sector it is a member of, I want to look at the numbers.
If the company has enough years of business history and the signs of a solid company – a competitive advantage, attractive profits and growth potential, the big question is whether it can maintain the projected growth?
An investor still has to monitor the progress of each stock in their portfolio, but by tending towards quality companies with good track records, we give ourselves an advantage to start out with.
I have four stocks that could make up a diversified portfolio of strong performance.
Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH) develops medical products to treat breathing disorders and administer respiratory care. It has a record of steady revenue and profits and in the last three years statutory net profit has risen by a compounded annual rate of 17%.
Return on equity and return on capital are 20.7% and 16% respectively. The company's guidance for FY2014 full year results are for NZ$97 million in net profit. At current exchange rates, that is A$89.7 million.
Tassal Group Limited (ASX: TGR) raises, processes and sells Atlantic salmon from its operations in Tasmania. A majority of its product supplies the Australian salmon market. Revenue has been on an upward trajectory for a number of years. Even after a dip in 2008 from the GFC, it picked up sales and earnings later.
Returns on equity and capital are regularly in the double digits, about 11% for each recently. In its first half of FY2014, it realised a 42% rise in statutory net profit to $22.4 million. It also paid down debt to a 17.2% net debt-to-equity.
Perpetual Limited (ASX: PPT), the fund management company, has a 24% return on investments and underlying net profit rose from $61.8 million to $75.3 million in the last two years. As the domestic and international financial markets have improved since the GFC, the company has made a solid return with its funds under management.
It announced an interim underlying net profit of $48.1 million, up 37% on the previous corresponding period. During the half year, it acquired The Trust Company, which offers trustee services for corporate and personal financial planning. This will allow it to expand into superannuation and self-managed super funds.
Slater & Gordon Limited (ASX: SGH) is a law firm that specialises in insurance claims, commercial, family and asbestos-related law. It is expanding into the UK market through acquisitions and now has 12 locations separate from the 70 offices it has domestically. It has branded practices such as Slater & Gordon, Trilby Misso Lawyers and Conveyancing Works.
It has increased revenue and net profit every year since listing in 2007. Returns on equity and capital are both 12%. In the first half of FY2014, net profit was up 21% to $23 million.
Over the past year, the share price is up 70.6% to $4.47.
Foolish takeaway
Choosing from among quality stocks gives you a better chance for decent returns.
