By Simon Herrmann
At the beginning of the year stock markets across the world plummeted and investors feared that 2016 would be a horrendous year. However despite ‘Brexit’ and Trump’s election, equities have rebounded strongly and U.S. stocks are now trading near all-time highs. The ASX looks set to finish the year moderately in the black supported by rising commodity prices and a late rebound in banking shares.
Looking at five household names – Commonwealth Bank, BHP Billiton, Telstra, Wesfarmers and CSL Limited – the average 2016 return excluding dividends is approximately +3.1% (as of 16 December 2016). However this is largely due to the 40% return from BHP as most of the other major blue-chip stocks have underperformed. It is recommended to have exposure to these companies as the additional income is attractive.
But at Wise-owl we believe it makes sense to have additional exposure to high quality growth companies in the small-mid cap space. Middle market companies form the backbone of the Australian economy while small-caps often present investors with ‘blue-sky’ opportunities.
Here are three of our top growth picks for 2017 which are designed to complement your existing blue-chip portfolio
Talisman Mining (TLM) - $37m Market Cap
Talisman Mining is an Australian minerals company with operations in WA. The company has a 30% interest in the Springfield Joint Venture (JV) and also holds the Sinclair nickel project , which was acquired in 2014.
Talisman’s board, management and share registry are very attractive with numerous members who have previously been involved in the $3 billion sale of the Jubilee Mine to Xstrata (now owned by Glencore). Technical studies at the Monty deposit have potential to drive near term interest towards the stock, whilst the Sinclair Project underpins a longer term value play.
However keep in mind that Talisman Mining is a speculative opportunity which needs to be carefully considered. There is no guarantee existing resources at Monty can be economically mined, or extended through additional exploration. Talisman is reliant on external capital and there is no guarantee it will be able to deliver its share of development capex at the Springfield JV.
Regardless the overall package makes a good investment case for Talisman which offers speculative exposure to the copper and nickel mining industries. With exploration and feasibility activities progressing concurrently, we believe the risk to reward ratio is very attractive.
Clearview Wealth (CVW) - $870m Market Cap
ClearView Wealth is an Australian financial services company focused on life insurance and wealth management. The Life Insurance division accounts for approximately 85 per cent of earnings, while Wealth Management makes up less than 10 per cent.
Clearview Wealth is a growth and income play. Management has increased the dividend for the past two consecutive years and the company has increased operating revenue for the past five financial years at an average annual growth rate of 16 per cent. Management may reward shareholders with higher distributions if growth targets are met. In addition, merger and acquisition activity provides further upside as seen in October when Sony Life Insurance acquired a 14.9% stake in the company.
Cooper Energy (COE) - $237m Market Cap
Cooper Energy is an Australian oil and gas exploration and production company with oil assets in the Cooper Basin and gas resources in the Gippsland and Otway Basin.
With the final investment decision for the 100% owned Sole Gas project due in the March 2017 quarter, procurement of project finance is the major catalyst. The project would increase Cooper’s production 4-fold to approximately 1 million barrels in FY17.
An investment in Cooper should however be regarded as speculative. Risks include reliance on external capital, procurement of project financing and reliance on volatile commodity prices.
Cooper Energy is positioned to address a tightening gas supply landscape in East Australia and the upcoming offtake agreement for the Sola Gas Project could transform the company and present a near-term driver.
Always keep in mind that diversification is key when it comes to investing. It is important that you don’t put all your eggs in one basket regardless if you’re looking at individual stocks, sectors or even markets.
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By Simon Herrmann