Aussie Shares Recommendations                                 We add colours to life

Fundamentalists buy and sell shares based on pragmatic analysis and commonsense.  Share market greats like Warren Buffet through their company new letters and media releases  have given considerable insight into the way they approach the share market. They made their money by going against the trend. When greed and fear rules the market, fundamentals of the companies are ignored. This provides great opportunity for making money for the fundamentalists. Because market always return to the basics, when reality strikes. Below are some of the factors considered in fundamental analysis of shares 

This ratio shows how many times the share price is to the earnings per share. For example if P.E Ratio is 25, it means that share price is 25 times the earnings per share. This is a good indication on whether the share is over valued or undervalued.  If the P.E ratio is high it could be because investors are expecting that the company’s future prospects are good. Buying stocks with low P.E ratio has better chances of making money especially when one can get blue chip stocks . 

Companies have low P.E’ s for a variety of reasons. It could be because the industry the company is in , is out of favour at the moment.  Or it could be because company decided not to give dividend in the financial year.  A dip in projected earnings in the future could be a most likely reason . 

If the long term prospect of the company is good , look for stocks with P.E  ratio under 15 . When I  am writing this article the world is recovering from the worst financial crisis and most of the blue chips traded in Australian stock exchange has P.E ratio below 15 . This is a good indication that these stocks will out perform anybodies expectation in the near future. 

This does not mean that companies with Higher P.E ratio are not investment materials. It may only mean that these companies are considered as secure bets by the investing community. So other factors also need to be considered before buying a stock. 

Earnings growth 

Some companies exhibit good record of consistent profit and a potential for future growth . Another indicator to consider is the profit growth of the company each year and the relative positioning of the company in its field.  For example Woolworths with good management has consistent profit growth over the years and expanded their business considerably .  At the same time Coles on the other hand, had minimal profit growth and an outdated marketing strategy before the take over . 

P.A Ratio 

Check the net asset backing of the companies you plan to invest.  For example if the companies share price is $5 and net asset backing is $2 per share, P.A ratio is 2.5 .  If the net asset ratio is below 1 it means that you are buying into the company at a discount price.  

Investing in penny stocks 

Fortes cue Mining was once a penny stock, which made many millionaires when the share price  picked up, but these things happen only once in five years . If you are not some one who can get share market information before hand, it is best to avoid buying into penny stocks especially in mining exploration companies. These companies may go bust at any time. Your money will be safer with Blue chips. But if you are a large scale investor, a small percentage of money could be invested in these stocks , because if you gambled right your money could become even 1000 times in the flick of an eye .

There are share market greats who consistently invest in penny stocks and just forget about them .  For example if you invest in ninety penny stocks  for a long time , twenty of them may go bust but the surviving ones may out perform the market to make you a millionaire 

Dividend Yield 

Long term investors expect  the share price to grow over the years and get a dividend from the companies they invest .  Dividend yield is a good indication of the returns you can get from your investment. There are companies that outperform the bank interest rates consistently. 

Debt to equity ratio 

All companies borrow to expand. There was a time taking risk was considered as a no go zone for companies. Now a days is it risk management rather than no risk.  Debt to equity ratio also shows the long term sustainability of the business . Highly geared companies struggle when interest rates go up or when refinancing becomes an issue. The recent examples are ABC learning and  Babcock and Brown  

Debt to equity ratio = Total Liabilities/ Share holder equity 

The ideal ratio is any where near 50% 

Current Ratio 

Current ratio = Current assets / Current Liabilities 

This ratio shows the companies ability to pay current liabilities. This ratio is considered good when it is 2 or more 

Probably you may assume that I am going to make a list of shares those meet these criteria . Not really . Make one yourself and that will help you negotiate the learning curve .  

I have mentioned earlier that I really don’t like to recommend penny stocks as they are high risk investments. Once again I am breaking that tradition.

Stirling Products Limited (ASX CODE : STI )

Stirling Products Limited commenced operations as an animal healthcare company in early 2004 focused on the development and commercialization of metabolic modifiers and immune boosting agents for a range of indications in the international animal healthcare markets.

In early 2009 Stirling joint ventured the global commercialization rights to a range of 26 fully developed botanical health products and is now uniquely positioned to market a full range of effective and natural human health products, some of which have industry blockbuster potential through having demonstrated to outperform traditional pharmaceutical and healthcare products .

The recent news about this company includes

• Launch of its Generic Pharmacy range in Australia.

• Publication of small trial results of its botanical immunomodulator ImmunoXel (Dzherelo)

• STI establishing a working relationship with Cipla Ltd, a major international pharmaceutical drug manufacturer based in India.

• Receiving a grant from the US Civilian Research & Development Foundation (CRDF) to conduct a doubleblind, placebo-controlled clinical trial of its botanical immunomodulator ImmunoXel.

• STI ’s acquisition of a 4,310 square metre near new, fully equipped and licensed, pharmaceutical manufacturing facility in Canada.

This company if well managed has a potential to have its own stake in the pharmaceutical industry. If that happens, the sky is the limit for the share prices.

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Disclaimer -  This is not a financial advise . In this article the author expresses his opinion about Australian Stock exchange and the shares traded based on both technical and fundamental analysis . One should contact their financial advisor before investing in shares or other financial products . We wont be liable for your actions.