Survival guide for choppy waters

A focus on the value provided by strong, profitable Aussie companies should reward investors in what could be a challenging year

- MARTIN ROTH

There are several trends that could help investors navigate what are potentially choppy investment waters as the local sharemarket continues its relentless rise. In this context, guiding investors towards value stocks becomes more important than ever.

Australia boasts many excellent companies that continue to make good profits year after year regardless of the direction of the financial markets. Despite the title, Top Stocks is actually a book about companies.

It’s intended to help investors find the best public companies in Australia using strict criteria. All companies must have been publicly listed for at least five years and must have been making a profit and paying a dividend for each of those five years. They must also meet tough benchmarks of profitability and debt levels. It is completely objective. My personal views count for nothing. In addition, share prices have never been relevant.

Of course, such stocks could not withstand the tidal wave of a substantial market selloff. They, too, would be affected. But they should be affected less. And if they are good companies they will continue to thrive and to pay dividends. And they will bounce back faster than many others.

Of the 91 companies in Top Stocks 2022 – one more than in last year’s edition – 71 reported a higher after-tax profit in their latest full financial year (June 2021 for most of them). In addition, 70 recorded higher earnings per share and 69 paid a higher dividend.

And though, as I mentioned, share prices are not relevant for selection to Top Stocks, 61 of the companies provided investor returns – share price appreciation plus dividends – of an annual average of at least 10% over a five-year period.