When companies report better-than-expected trading, it can be part of a long-running trend that pushes share prices higher as forecasters struggle to keep pace with progress. That’s why every month we hunt for companies that have been smashing forecasts and are among the favourite stocks of the top investors tracked by Citywire Elite Companies.
The potential for broker upgrades to signal a long-term improvement in fortunes is often most telling when accompanied by a hefty share price rise. On that basis, we’re taking a closer look at four stocks from our hunt that boast a top AAA Elite Companies rating and have experienced a double-digit gain in their share price over the month.
For readers who just want the names of the top-rated companies smashing forecasts, a table of the 22 can be found at the end of this article.
How our broker upgrades Data Dive works
Our hunt for companies smashing broker forecasts begins by selecting the highest-ranked fifth of large-cap and small-cap (below $2.3bn market cap) stocks from the Citywire Elite Companies database, based on their popularity with the Elite Investors we track. Stocks must be at least Citywire AA rated.
We then look for stocks experiencing big upgrades to consensus broker earnings per share (EPS) forecasts over the past month. What constitutes ‘big’ depends on the month – this time around, we are looking for a 10% improvement or better in forecasts for the coming 12 months. That represents a relatively low bar for this screen.
Our Data Dive for companies smashing broker forecasts is one of a weekly roster of five simple but powerful screens we conduct on our top-rated stocks to unearth investment ideas.
Our six Data Dives are:
TMG
22% one-month upgrade and 21% gain
Talaat Moustafa Group (EG:TMGH), or TMG for short, is a leading Egyptian real estate developer that has just embarked on a massive project.
The company has announced it is going ahead with a $21bn development on Egypt’s Mediterranean coast, called SouthMed. The tourist resort will cover 23 million square metres and has started to be heavily plugged on social media, with Hollywood’s Sylvester Stallone acting as brand ambassador.
The marketing push appears to be working, with the project racking up $4.2bn in off-plan sales in its first six days on the market. That took group revenues from the start of the year to 8 July to a record $7.1bn.
TMG has estimated the total sale value of the project to be $35bn.
The project has strong support from the Egyptian government, which is keen to attract foreign currency after nearly running out of reserves earlier this year.
As a result of the reserves crisis, the Egyptian pound was massively devalued in March as the country moved to a more flexible exchange rate while securing $8bn from the International Monetary Fund. The devaluation has contributed to earnings upgrades for Egyptian companies that do a lot of business in dollars, such as TMG.
The government is also tapping dollars through a $23bn city development backed by the Abu Dabi sovereign wealth fund ADQ, which will work with TMG on the project.
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Tokio Marine
14% one-month upgrade and 18% gain
A new three-year growth plan announced by Tokio Marine (JP:8766) has helped boost sentiment towards the multinational insurer. The company is benefiting from rising insurance rates and its efforts to push down costs and juice more profit from its underwriting and investment activities.
Management thinks the company can grow EPS by 8% or more on an average annualised basis over the next three years. The company hopes this will help return on equity (RoE) move above 14% to bring profitability more in line with rivals.
The years ahead should also benefit from big sales of the stakes Tokio Marine holds in clients. A market value of JPY3.5tn (£17bn) has been put on these holdings, which is well above the current balance sheet value.
Cross holdings have become something of a corporate no-no in Japan as authorities look to rev up the domestic stock market and push companies to improve their profitability.
Tokio Marine reckons it should have sold all its cross holdings in six years’ time, including about JPY600m in sales this year. Proceeds are expected to help fund share buybacks, of which the company has a long history.
SK Hynix
16% one-month upgrade and 15% gain
Korean memory chip maker SK Hynix (KR:000660) is enjoying the early stage of a recovery in its long-depressed corner of the semiconductor market, along with the benefits of being the leader in high-bandwidth memory, which has found a booming market in leading-edge AI.
Read our recent profile: ‘AI is a huge boost’: Nvidia-linked chip play on eight times earnings
Pan American Silver
12% one-month upgrade and 12% gain
Despite what’s suggested by its name, Pan American Silver’s (CA:PAAS) biggest asset is gold, accounting for 47% of reserves. Silver accounts for 38%, while other metals make up the remainder.
Sentiment towards the company has been buoyed this year by the strong performance of gold and silver.
The Canadian company, which has operations across Latin America, released positive exploration results from its La Colorada mine in Mexico and El Peñon in Chile last month.
This helped add to the excitement generated by an investor day where company bosses drove home the potential for growth from Pan American Silver’s many mine extension plans, which are expected to help fuel growth over the coming years.
Elite companies smashing forecasts
The companies in the table below are ordered by their popularity with the top portfolio managers whose investments Citywire tracks.
Source: FactSet. EPS = earnings per share. Forecasts based on next 12 months.
