It’s amazing to think investors would ever stop caring whether a company was profitable or not, but it seems to happen every cycle, usually towards the latter stages of a long bull run. Companies with a history of reliable profits take a back seat to concept stocks, stocks with no profits but great stories and exciting visions. These stocks are usually early-stage technology companies, industry disruptors or exploratory miners.
Investors get excited by the prospect of high growth and returns and when the market is buoyant it all works. In recent years, particularly, these kinds of stocks looked very appealing with interest rates at all-time lows and bonds returning negative yields. T Aurizon trades at a discount because it is heavily reliant on coal haulage but can use its rail trucks for bulk commodities such as wheat.We were watching the Amcor stock price last week, and suddenly it jumped close to 10 per cent. We double-checked we hadn’t missed something. Had it forecast impressive growth? Signed a new deal? Sold off part of its business? No. Amcor had just released its quarterly results and shown, once again, that it was a solid, growing business with sound fundamentals.
Finally, all of Aurizon’s contracts are backed by CPI, so it’s well-placed to pass on any rising costs to its customers, weather the current market volatility and continue to do well. Despite the empty presentation room, it seems the market is starting to agree with us. Aurizon’s share price has risen 10 per cent in the last three months. It still trades on a reasonable valuation of 13 times profits and pays a dividend yield close to 6 per cent.
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