Looking for perspective in a noisy market
For some perspective in a noisy market, I regularly go through the exercise of looking back a year at the worst performers in the Small Ordinaries Index. Last year, the resource sector still had moderate support but this has for the most part evaporated with eighteen of the bottom twenty performers over the last year being resource or resource related entities. Within the resource carnage there will be companies that have been indiscriminately sold down. Given a mean reversion philosophy, I suspect that something in the bottom twenty could actually be a top performer over the next year. The critical differentiator likely to be balance sheet strength, to firstly survive the downturn in commodity prices and the second order being the quality of the underlying asset/s. Based on this simple formula (i.e. crystal ball gazing) it would appear the primary candidates for outperformance over the next year are BC Iron, Silex and Mount Gibson.
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