It’s quirk of investing that so many commentators were actually cheering last week as share prices fell and regular programming resumed for market behaviour.
Partly I think this is because a little bruising today reduces the risk of far worse pain later if markets keep rising. But the uncertainty can also create great opportunities if you are prepared.
So what now?
A couple of months ago I wrote ‘3 tips for successful investing in 2018’. One of the steps I was taking was to make a list of top quality companies I want to own if prices fall.
Specific to my list is a theme of topping up on growing companies that are great at allocating capital and compounding returns. Sometimes the best companies to buy are the ones you already own, so here are three that I’m watching like a hawk today.
1. Xero Limited (ASX: XRO)
I would love to own a larger slice of Xero Limited if given the chance. I take favour with founder and CEO Rod Drury’s long-term vision for the company to grow to $NZ1 billion in annual revenue – more than twice the NZ$417 million annual recurring revenue reported at 30 September 2017.
I think with continual focus on growing users and adding incremental value through features, Xero stands a strong chance of achieving the vision.
2. SKYCITY Entertainment Group Limited (ASX: SKC)
I was pleased with SkyCity Entertainment’s first half 2018 results announced last week. The update included growing revenue and a slight increase in operating margin which was a positive outcome given the company’s core asset, the Auckland casino, had disruptive construction works going on around the site.
I like SkyCity’s leverage to the long-term population growth of Auckland which is also the country’s biggest tourism gateway. Supported by a monopoly casino licence I see the company continuing to churn out cash over the next five years.
3. Gentrack Group Ltd (ASX: GTK)
Gentrack provides billing software to airports, water and electricity companies, generating revenue from annual fees on new sales, support services and project services.
The recent volatility has knocked about 9% off Gentrack’s share price and I’m watching it closely because I like the company’s recurring revenues and long term growth profile. The company is targeting annual EBITDA (Earnings Before Interest Tax, Depreciation and Amortization) growth of around 15%.
The company is profitable, reinvests sensibly in R&D and, of course, pays out dividends so there is a lot to like.
Being prepared for what ever the market throws at us is a fine balance, but it can pay of handsomely when the opportunities do arise.
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You can follow him on Twitter @Regan_Invests.
The Motley Fool Australia owns shares of Xero. The Motley Fool Australia has recommended GENTRACK FPO NZ and Sky City Entertainment Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.