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Australia's most successful manufacturers are Small Caps06.03.2014

In today's issue we cover two stocks (of the 14 analysed in total) that have almost trippled subscribers' returns: salmon harvester Tassal (TGR) and almond producer Select Harvests. The good news is that there should be more gains in the food producing sector, and if you read the report you will find out where.

But a quick explanation could be in order, in relation to what is going on.

For one thing, both companies are turnaround situations. More than this though, the market, rightly or wrongly, views their profit growth as sustainable.

Normally companies with agricultural based operations are subject to massive seasonality and big capital constraints. The plight of your average farmer is a testament to this, and has been acknowledged by the Federal Government with its drought assistance package.

The double digit profit growth is being viewed as sustainable because these companies have gone from being merely producers of food to manufacturers, according to Paul Jensz, an analyst with Phillip Capital, who compares Warrnambool’s business model of producing milk and dairy products primarily for big manufacturers to Select Harvests, which does much of the processing itself. He says:

“Both service the parts of Asia where the demand for protein is growing at 7 to 10 per cent a year, but the situation diverges because Select Harvests is more of a factory, feeding into this demand, which minimises the risk and appears to investors more like a manufacturer.”

Download today's issue of Under the Radar Report. You can't afford not to be Under the Radar.

Richard Hemming

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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