is not a how-to book. It does not give step-by-step instructions on ‘winning' in the stock market. Rather, it is an independent and objective evaluation of leading companies, based on rigid criteria, with the intention of yielding a large selection of stocks that can become the starting point for investors wishing to do their own research.
A large amount of information is presented on each company. Another key feature of the book is that the data is presented in a common format, to allow readers to make easy comparisons between companies.
It is necessarily a conservative book. All stocks must have been listed for five years even to be considered for inclusion. It is especially suited for those seeking out value stocks for longer-term investment.
Yet, perhaps ironically, the book is also being used by short-term traders seeking a goodly selection of financially sound and reliable companies whose shares they can trade.
In addition, there are many regular readers who buy the book each year, and to them in particular I express my thanks.
The criteria for inclusion in Top Stocks are strict:
• All companies must be included in the All Ordinaries Index, which comprises Australia's 500 largest stocks (out of around 2200). The reason for excluding smaller companies is that there is often little investor information available on many of them and some are so thinly traded as to be almost illiquid. In fact, the 500 All Ordinaries companies comprise, by market capitalisation, more than 90 per cent of the entire market. (Note that one company in the book, Beyond International, is no longer in the All Ordinaries Index. However, it was in Top Stocks 2016, so for continuity purposes it has been included in the present book.)
• It is necessary that all companies be publicly listed since at least the end of 2011, and have a five-year record of profits and dividend payouts, each year.
• All companies are required to post a return-on-equity ratio of at least 10 per cent in their latest financial year.
• No company should have a debt-to-equity ratio of more than 70 per cent.
• It must be stressed that share price performance is NOT one of the criteria for inclusion in this book. The purpose is to select companies with good profits and a strong balance sheet. These may not offer the spectacular share price returns of a biotech start-up or a promising gold miner, but they should also present far less risk.
• There are several notable exclusions. Listed managed investments – as defined by the ASX – are out, as these mainly buy other shares or investments. Examples are Australian Foundation Investment Company and all the real estate investment trusts.
• A further exclusion are the foreign stocks listed on the ASX. There is sometimes a lack of information available about such companies. In addition, their stock prices tend to move on events and trends in their home countries, making it difficult at times for local investors to follow them.
It is surely a tribute to the strength and resilience of Australian corporations that, once again, despite the volatility of recent years, so many companies have qualified for the book.
A total of 20 companies from Top Stocks 2016 have been omitted from this new edition.
One company was acquired during the year (Patties Foods).
Two did not pay a dividend for the year (Acrux, Metcash).
Some corporations took advantage of low interest rates to expand their borrowings, and five companies from Top Stocks 2016 saw their debt-to-equity ratio rise above the 70 per cent limit for this book (CSL, Orica, Prime Media Group, Thorn Group, TPG Telecom).
The remaining 12 excluded companies had return-on-equity figures that fell below the required 10 per cent (ALS, Crown Resorts, Decmil Group, ERM Power, Insurance Australia Group, Myer Holdings, Orotongroup, Pacific Current Group (formerly known as Treasury Group), RCR Tomlinson, Seymour Whyte, SMS Management and Technology, Woodside Petroleum).
There are 16 new companies in this book (although eight of them have appeared in earlier editions of the book but were not in Top Stocks 2016).
The new companies are:
*Companies that have not appeared in any previous edition of Top Stocks.
This is the 23nd edition of Top Stocks. Just three companies have appeared in each one of those editions:
• ANZ Banking
• Commonwealth Bank of Australia
• Westpac Banking
Once again it is my hope that Top Stocks will serve you well.
Martin Roth
Melbourne
September 2016
Introduction
The 90 companies in this book have been placed as much as possible into a common format, for ease of comparison. Please study the following explanations in order to get as much as possible from the large amount of data.
The tables have been made as concise as possible, though they repay careful study, as they contain large amounts of information.
Note that the tables for the banks have been arranged a little differently from the others. Details of these are outlined later in this Introduction.
At the head of each entry is the company name, with its three-letter ASX code and the website address.
Under the company name is a five-year share-price chart, to September 2016, provided by Alan Hull (www.alanhull.com), author of Invest My Way, Trade My Way and Active Investing.
Under the share-price chart is a small table with the following data.
Share price
This is the closing price on 2 September 2016. Also included are the 12-month high and low prices, as of the same date.
Market capitalisation
This is the size of the company, as determined by the stock market. It is the share price (again, as of 2 September 2016) multiplied by the number of shares in issue. All companies in this book must be in the All Ordinaries Index, which comprises Australia's 500 largest stocks, as measured by market capitalisation.
Price-to-NTA-per-share ratio
The NTA-per-share figure expresses the worth of a company's net tangible assets – that is, its assets minus its liabilities and intangible assets – for each share of the company. The price-to-NTA-per-share ratio relates this figure to the share price.
A ratio of one means that the company is valued exactly according to the value of its assets. A ratio below one suggests that the shares are a bargain, though usually there is a good reason for this. Profits are more important than assets.
Some companies
