As the markets flirt with new highs, it is perhaps a reasonable assumption that there could well be a correction just around the corner. Whether we are seeing the start of this today is anyone’s guess. I for one will not waste my time and money trying to predict whether the market will rise or fall from here. What I will do is look for good, quality companies that I believe will deliver market-beating returns over the long term. Let’s have a look at just three that I’m watching closely right now.
easyjet
This morning, my favourite low-cost airline, easyjet (LSE: EZJ), released a trading statement. It guided the market to expect earnings for the interim period to be ahead of previous guidance. As you may have guessed, there will be a major benefit from fuel savings as well as currency translations in the first half, although there will be around a £20 million adverse currency impact in the full-year numbers. Personally, I’m more interested in the underlying growth of the business, and it seems to me that more people are flying with easyjet and more people are now more likely to fly abroad in general as fuel price savings are passed through to passengers. It isn’t unreasonable to believe that easyjet will capture a number of these new passengers.
On a normal day, one could have expected the shares to be marked up in price today. However, a combination of air strikes in Yemen and the resultant higher oil price has weighed on the shares, marking them down by over 4% as I type. Am I worried? Well, as far as I can see, the business is performing well, and if the weather in this country stays the same as we head towards the Easter break, I can see a strong start to the second half.
ARM Holdings
This is a quality UK-based company engaged in the design of microprocessors, physical intellectual property (IP) and related technology and software, and the sale of development tools. The company offers a range of products including microprocessors, graphics processors, video engines, enabling software, cell libraries, embedded memories, connectivity products, peripherals and development tools. Its share price has dipped from a recent high of 1200 pence, reached following a good set of results, partly due to general weakness in the sector and perhaps some profit-taking by investors.
With the price down by around 5% today, the shares still trade on a premium forward P/E ratio of around 35 times earnings and yielding less than 1%, there will not be many who feel that the share is cheap. That said, given the CEO’s outlook for 2015 sounding very positive, I believe that there could be upgrades on the way and, as a result, I shall be watching this one carefully.
Shire
After the US firm Abbvie walked away from takeover talks following proposed changes to US tax laws, few would have expected Shire (LSE: SHP) to regain its composure and beat the market.
But beat the market it has. Indeed, the share price has reached new highs recently as the company used the funds received following the breakdown of takeover talks to acquire the US firm NPS Pharma, and announced record results for the year ending 31st December 2014.
As the shares come off of their recent highs, I think that this affords an opportunity to add them to my watchlist. True, the shares are not cheap, trading on a forward P/E of around 20 times earnings and yielding less than 0.5% — add to the mix a sizeable acquisition that could distract the management in the short term, and there could be some weakness in the share price going forward, potentially giving me an opportunity to buy some shares in a quality company to hold over the long term.
