Sunday, January 28, 2007

Magazine Tips and their effect on shares

As any good investor should and would do, I read the various stock market magazines that are available. This includes the free ones which circle the web to those which are purchased at the newsagent.

One of the magazines I regularly read is the "SmartInvestor". I find a number of longer term tips here which prove to be profitable. Apparently others are catching onto this as well. I didn't get a chance to look at it early this month and only got to it this weekend. I usually grab a highlighter and rummage through the pages looking for fundamentally sound companies that are being touted as the next big thing. I then use my own judgement on whether or not the company is a worthwhile purchase.

This month I highlighted the following stocks for the following reasons :

Brambles Limited (ASX:BXB) : The company is debt free, the balance sheet is undergeared, possible takeover target, rapid organic growth, high rates or return on capital.

Reckon Limited (ASX:RKN) : Operates in a duopoly, More than half its income is from recurring revenue, strong earnings growth, trading at a discount.

Q Limited (ASX:QXQ) : Market capitalisation understates its potential.

Austin Engineering Limited (ASX:ANG) : Surge in workload, EBITDA growth near 40%, management confirmed at least 40% growth for 2007, lots of cash reserves, Price to Earnings of 9.

Phosphagenics Limited (ASX:POH) : Insulin through skin product, P/E ratio of 10.

Mariner Bridge Investments Limited (ASX:MBR) : Great management, possible strong returns, nice trend in chart.

Adcorp Australia Limited (ASX:AAU) : Share price has halved, established provider, conservative price earnings multiple, 11% yield, Low growth outlook set to change, strong cash flow, debt free, acquisitions possible.

Allomak Limited (ASX:AMA) : In LPG industry as a wholesale supplier of LPG kits, Reaffirmed earnings guidance of at least $4.2 million, PE of 8.4 and dividend yield at 8%.

Structural Systems Limited (ASX:STS) : EPS at least 22c, PE of less than 10, significant discount to peers.

SP Ausnet Limited (ASX:SPN) : Fat dividend yield of6.63%, Should be in top 5 yielding companies for 2007/2008.

This is a list of 10 shares which I saw potential in after looking at the magazine. It usually takes me about 30 Min's to get through the magazine and identify the top stocks worth looking at from a fundamental perspective.

So how did these top 10 stocks go ?

The magazine comes out on the 15th Jan 2007. So if we assume we bought at the opening price on the 15th and held till today :
  • BXB - Purchase at $12.82. Now trading at $13.31 (3.8%)
  • RKN - Purchase at $1.02. Now trading at $1.08 (5.8%)
  • QXQ - Purchase at $0.039. Now trading at $0.057 (46%)
  • ANG - Purchase at $0.97. Now trading at $1.30 (34%)
  • POH - Purchase at $0.335. Now trading at $0.34 (1.5%)
  • MBR - Purchase at $2.57. Now trading at $2.50 (-2.7%)
  • AAU - Purchase at $0.54. Now trading at $0.645 (19%)
  • AMA - Purchase at $0.42. Now trading at $0.48 (14%)
  • STS - Purchase at $1.72. Now trading at $1.94 (12%)
  • SPN - Purchased at $1.40. Now trading at $1.415 (1%)
Nine of the ten stocks finished in a profit. The majority of stocks were even higher then the current prices but had declined in the last few days after spiking earlier in the week.

The profit on some of these shares is remarkable. The highest was an astounding 46%. The lowest was a meager loss of 2.7%. Five of the ten stocks produced more than 10% profit. The average profit was 13.44%. This works out to be a return of approx 161% a year.

Lets assume this works every month (I can't say this is true as I have only got a couple of months of data). Lets also assume you could make a rough 10% on your money which is a 3% discount to this months result. Compounding this through a year actually produces a result of 213% return. Assuming you start with 10K and invest evenly every month you would reach 100K within 2 years 1 month. You would reach a million within 4 years 1 month.

Is it worth following ... well the small amount of research suggests there is a case to follow this unique system. While I can follow this easily it is a bit hard for other people to reproduce the same results, as I selected 10 stocks which I thought had potential. There is a lot more than 10 stocks in the magazine.

Why not pick up a magazine you had from a while ago and try it out ... it might just turn out to be an interesting and profitable experiment.

Good Luck Investing.

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