Sunday, October 23, 2011

Highest Dividend Paying Shares - The Micro-Caps

Earlier this year I looked at the ASX100 from an income investor's point of view in Highest Dividend Paying Stocks In The ASX100.  Then I gave the Small Caps a going over in Best Dividend Paying Shares - The Small Caps.

Today we're going to look at Micro Caps.  For the purposes of this exercise, I'm going to define Micro Cap stocks as anything outside the ASX 300 (ie. anything outside the largest 300 companies listed on the Australian stock exchange).

So in this first table, you'll find the top 10 dividend payers.


ASX
Code
Company Name Current
Price
Dividend
Yield
Franking Payout Ratio
RHG RHG Limited $0.40 222.0% 100% 371%
RDG Resource Development Group Limited $0.24 139.0% 0% 1546%
BTC BioTech Capital Limited $0.09 70.6% 0% -128%
AIQ Alternative Investment Trust $0.55 69.1% 0% -428%
LRG Longreach Group Limited $0.18 55.6% 0% -943%
AYT Adelaide Managed Funds Asset Backed Yield Trust $0.27 19.8% 0% 100%
THG Thakral Holdings Limited $0.51 19.6% 0% -483%
JMB Jumbuck Entertainment $0.09 17.7% 100% -42%
SHV Select Harvests Limited $1.47 17.0% 100% 39%
AGJ Agricultural Land Trust $0.17 14.4% 0% 91%
Highest Yielding Micro-Caps

I don't know about you, but the first thing that struck me about the list above are dividend yields of 222%, 139% and so on.  I suspect these yields are not sustainable.

For example, there is no way that RHG Group will pay out an 89 cent dividend again next year.  This year was an anomoly and the result of a special dividend in order to return some excess cash to shareholders.

Since I am looking for a high but sustainable dividend yield, I'm going to use the payout ratio to eliminate those companies which are unlikely to maintain their high dividend payments.  The payout ratio expresses the dividend amount as a percentage of profits.  So a ratio of over 100% means they are paying out more than they earn - that can't continue.  And a negative ratio means they were paying a dividend when though they were making a loss.

So let's remove those companies with a payout ratio greater than 100% and less than 0% (negative).

ASX
Code
Company Name Current
Price
Dividend
Yield
Franking Payout Ratio
SHV Select Harvests Limited $1.47 17.0% 100% 39%
AGJ Agricultural Land Trust $0.17 14.4% 0% 91%
MUE Multiplex European Property Fund $0.18 13.9% 0% 36%
VTG Vita Group Limited $0.25 12.7% 100% 65%
WIC Westoz Investment Company Limited $0.92 12.0% 100% 74%
IFM Infomedia Limited $0.20 12.0% 100% 73%
AKU Australian Masters Corporate Bond Fund No3 Limited $49.58 11.8% 100% 96%
OZG Ozgrowth Limited $0.15 11.7% 100% 48%
AIR Astivita Renewables Limited $0.70 11.4% 100% 55%
RCT Reef Casino Trust $1.77 11.3% 0% 65%
High Dividends / Realistic Payout Ratio

Okay, that got rid of those ridiculously high yields, although there are still some high numbers there.

The next thing I'm going to do is remove Listed Investment Companies, Real Estate Trusts and other Investment Trusts.  I'm most interested in real operating businesses.

ASX
Code
Company Name Current
Price
Dividend
Yield
Franking Payout Ratio
SHV Select Harvests Limited $1.47 17.0% 100% 39%
VTG Vita Group Limited $0.25 12.7% 100% 65%
IFM Infomedia Limited $0.20 12.0% 100% 73%
AIR Astivita Renewables Limited $0.70 11.4% 100% 55%
MCP McPherson's Limited $2.32 11.2% 100% 66%
PFG Prime Financial Group Limited $0.14 11.1% 100% 64%
CGO CPT Global Limited $0.52 10.7% 100% 88%
MLB Melbourne IT Limited $1.41 10.4% 100% 74%
MOC Mortgage Choice Limited $1.26 10.3% 100% 57%
BSA BSA Limited $0.20 10.3% 100% 41%
Final List

The final list still looks impressive from an income producing point of view.  All 10 stocks yield over 10% and they are all fully franked.

Further Research Required

Remember these are micro caps - the minnows of the ASX.  They're normally less mature and less diversified than their larger counterparts.  Because of their small size, they are quite often not covered by stock broker research reports or by other investment research services.  This means you'll have to roll up your sleeves and do your own research.  It may be time consuming but the rewards can be worth it.

If I were looking at any of these shares for income, the next thing I would do is work out whether I thought the dividend payout levels were sustainable.  I would look at each company's history of paying dividends.  Have they made consistent payments?  I would also look at their ability to pay.  Do they have sufficient free cash flow?  Debt is another import one for me.  I like to see minimal debt on the balance sheet.

However, the reality is that while high dividend yield is nice to have, many investors would be picking over these companies looking at the potential for capital growth.  It is possible that smaller companies today can be larger companies in the future.  The trick is to work out which ones will succeed in that quest

Sunday, February 27, 2011

Improving Investment Returns With The Piotroski Method

When it comes to maximising investment performance, I'm a firm believer that good returns are just as much a result the of shares we don't buy as of those we do. It's easy to put a large dent in the returns from our share investments with just one poor investment decision. So with that in mind, today I'd like to discuss a way which can be used to reduce the number of poor investment decisions which we all make. It's called the Piotroski Method.

The Piotroski Method is a system devised by Joseph Piotroski (of the University of Chicago) as a way of identifying stronger companies from among a group of cheap stocks. The problem with cheap shares is that they are normally cheap for a reason. They are often in poor financial health with poor profitability and in the worst cases are at risk of insolvency.

What Piotroski found was that by avoiding the financially weak cheap shares and concentrating on the financially strong ones, investors could expect higher average investment returns.

When we talk about cheap shares, we mean those which are trading at low price to book ratios (current share price divided by net asset value per share). It's a value investor's bread and butter - sifting through shares which are trading at less than the what the company could (theoretically) be broken up and sold for. But there are many value-traps for the unwary. These companies may be teetering on the edge of bankruptcy or their industry may be in structural decline or ... well, you get the idea.

The beauty of the Piotroski Method is that using a set of signals, you are able to rate a company - give it a score (F_SCORE) based on an objective study of the firm's financial statements. This score, out of 9, tells us what sort of financial shape the company is in. The higher the score, the better. He found that companies scoring an 8 or a 9 gave the best overall average returns.

What follows are each of the criteria or 'signals' which, when added together make up a firm's F_SCORE.

1. Net Profit

Is the company profitable?

Award 1 point if the company made a profit last year.

2. Operating Cash Flow

Is the company able to generate positive cash flow through its operations?

Award 1 point if last year's operating cash flow was positive.

3. Increasing Return On Assets

Is the company becoming more profitable? Is it using its resources more efficiently?

Award 1 point of last year's return on assets was greater than that of the year before.

4. Earnings Quality

We want to make sure a company really is making as much money as it claims and in this department, cash is king. We want to see operating cash flow at least as great as net profit. Otherwise this might highlight accounting irregularities.

Award 1 point if last year's operating cash flow was greater than net profit.

5. Long Term Debt Compared To Assets

We want an in investment where the debt is under control. We are looking for a signal that financial risk is decreasing.

Award 1 point if the ratio of long term debt to assets is less than the previous year's.

6. Improving Current Ratio

Another measure of financial risk. Again we are looking for good news in that the ratio is moving in the right direction.

Award 1 point if the current ratio is greater last year than in the one before.

7. Number Of Shares Outstanding

Does the company need to raise capital to support itself? We want a company which can fund itself internally rather than one which needs to undertake capital raising's to fund 'growth'.

Award 1 point if the number of shares outstanding last year was the same as or less than the figure for the year before.

8. Improving Gross Margin

An increasing gross margin is good news. It means the company has improved its pricing power or reduced its input costs (or both).

Award 1 point if the company has increased its gross margin year on year.

9. Increasing Asset Turnover Ratio

The asset turnover ratio provides some insight into how productive a company is with its assets. A higher ratio indicates improvement in how efficiently the company is operating.

Award 1 point if the asset turnover has increased last year when compared to the year before.

If you want to look into the nitty gritty of the research done by Piotroski then you can read more about it in his research paper - http://www.chicagobooth.edu/faculty/selectedpapers/sp84.pdf.

I should warn you that it is fairly heavy going, but I think it is well worth at least skimming through the research paper. A number of important points from the research struck me.

Piotroski found the out-performance of high F_SCORE stocks over low F_SCORE stocks was greatest among smaller stocks. He also found that the out-performance was inversely correlated with the level of analyst coverage. In other words there was more money to be made in shares which were not closely followed by security analysts.

Out-performance was greatest in the 12 months immediately after formation of the portfolio. It seems that the inefficiencies in pricing don't last terribly long.

In the conclusion, Piotroski points out that he has not necessarily found the optimal set of financial ratios for use in predicting the future performance of value shares. Rather, he has shown that by using historical information to avoid financially weak companies and concentrate of strong ones, investors are able to increase average returns substantially.

It's worth stressing that his research focused on 'value stocks' or high Book to Market stocks (ie. low Price to Book).


Sunday, February 20, 2011

Best Dividend Paying Shares - The Small Caps

It's time for another 'best dividend stocks' type of post. Last time, in Highest Dividend Paying Stocks In The ASX100, I did just as the title suggests. I scoured the ASX100 looking for shares with the best income potential. While I stressed in that article that more investigative work would need to be done to whittle the list down to a handful of suitable investment candidates, I found the exercise useful and so did a number of readers.

Today's top dividend shares are all small caps. I have used the stocks which make up the S&P ASX Small Ordinaries index as a place to start my search. So based on historic dividend yield alone, I came up with the following list.

ASX Code Company Name Current Price Dividend Yield Franking Payout Ratio
TSI Transfield Services Infrastructure Fund $0.59 15.4% 0% 194%
COF Coffey International Ltd $0.84 14.1% 100% 102%
CIF Challenger Infrastructure Fund $1.18 11.9% 0% 135%
APZ Aspen Group $0.46 9.3% 0% 84%
ENV Envestra Ltd $0.60 9.2% 55% 203%
SPN SP AUSNET (stapled) $0.89 9.1% 40% 99%
CDI Challenger Diversified Property Group $0.51 8.1% 0% 72%
PMV Premier Investments Ltd $6.04 7.6% 100% 158%
AAD Ardent Leisure Ltd $1.39 7.6% 0% 94%
HST Hastie Group $0.93 7.5% 100% 54%

Best Small Cap Dividend Yields

With the top 3 companies on this list each sporting a dividend yield over 10%, these results look very impressive. However, as I did last time, I will now make a small adjustment and include only those companies with a payout ratio of 100% or less.

The purpose of this adjustment is to remove those companies whose dividend yield is not likely to be sustainable. A company can't pay out more than 100% of profits for very long. The most likely future for such a company is almost certainly one in which a lower dividend is paid.

Here is the adjusted list.

ASX Code Company Name Current Price Dividend Yield Franking Payout Ratio
APZ Aspen Group $0.46 9.3% 0% 84%
SPN SP AUSNET (stapled) $0.89 9.1% 40% 99%
CDI Challenger Diversified Property Group $0.51 8.1% 0% 72%
AAD Ardent Leisure Ltd $1.39 7.6% 0% 94%
HST Hastie Group $0.93 7.5% 100% 54%
WTP Watpac Limited $1.71 6.9% 100% 71%
SLM Salmat Ltd $4.16 6.9% 100% 79%
BWP Bunnings Warehouse Prop Trust $1.82 6.8% 0% 100%
ALZ Australand Property Group $3.10 6.7% 0% 93%
GUD GUD Hldgs Ltd $9.73 6.5% 100% 81%

Highest Sustainable Dividend Yields

The dividend yields in this list are certainly lower, but with returns ranging from 6.5% up to 9.3% (with the prospect of some capital growth thrown in), this list is certainly worthy of closer inspection.

After doing just that, I noticed that the list is somewhat overweight in property trusts or REITs (Real Estate Investment Trusts) as they are more properly called.

Now I don't have anything against property trusts. They have offered very good income prospects to investors in the past (subject to some hiccoughs during the GFC). However, when conducting my investment activities I consider these to be a separate asset class. For that reason I will filter these out from the list as well.

ASX Code Company Name Current Price Dividend Yield Franking Payout Ratio
SPN SP AUSNET (stapled) $0.89 9.1% 40% 99%
HST Hastie Group $0.93 7.5% 100% 54%
WTP Watpac Limited $1.71 6.9% 100% 71%
SLM Salmat Ltd $4.16 6.9% 100% 79%
ALZ Australand Property Group $3.10 6.7% 0% 93%
GUD GUD Hldgs Ltd $9.73 6.5% 100% 81%
HIL Hills Holdings Limited $1.87 6.0% 100% 75%
CAB Cabcharge Australia Ltd $5.84 6.0% 100% 71%
SGT Singapore Telecommunications Ltd $2.31 5.9% 0% 58%
MCP McPhersons Ltd $3.39 5.9% 100% 54%

Best Income Shares (excluding REITs)

Now we're getting somewhere. The final list has a number of good investment candidates. They all have good income potential with dividend yields of 5.9% and greater. They are a diverse group of companies across a number of unrelated industies. Seven of the ten companies pay fully franked dividends, while the eighth is franked to 40%. What's not to like?

Well for one thing, there's debt. I know that one one the companies in the list above (Hastie Group) ran into troubles with its lenders just last week and is looking like it might need to undertake a capital raising (a sure way to cut its dividend yield).

I have not applied any filters to the list for things like debt levels or financial performance (ROE, and the like). Come on - I'm not going to do all of the work for you!

I would suggest to next step would be to drill down into the financial statements of each of these companies to make sure there are no nasty surprises waiting for the unwary.

Once again I would like to stress that I am not recommending that you invest in any of the shares listed here (let Hastie group be a warning to you). The analysis above has been superficial at best, focusing on stocks with the best dividend yield. But it does give us a short list upon which we can concentrate our efforts.


Monday, January 31, 2011

2011 Share Floats - What Will 2011 Hold For Investors In IPOs?

With the year now well underway, it's time to turn our attention to what the IPO market might throw our way in 2011. In terms of the number of new issues, last year was an improvement on 2009. Will 2011 be a better year again for investors in Australian share floats?

2010 saw 96 new listings worth a total of $7.5 billion. The monster float of the year was QR National. And despite some investor doubt in the run-up to the QRN share offer, the share price has actually performed fairly well. Shares are trading at $2.80 as I write this, which is a reasonable premium to the $2.45 paid by retail investors. Of course such short term price movement is likely to be driven more by sentiment than by fundamentals. The real test for QR National will be the next couple of years operating results.

Looking ahead, the first major float of 2011 is rumoured to be Nine Entertainment Co. This IPO could be worth as much as $5 billion. Nine Entertainment Co is the new name for the PBL Media assets bought by private equity CVC Capital Partners in 2007.

Here is the blurb from the home page of Nine Entertainment Co website:

We are Australia's most diversified entertainment company. Our assets include the Nine Network Australia, ACP Magazines, Ticketek, Acer Arena and majority interests in carsales.com, a 50% interest in ninemsn as well as interests in the Australian News Channel (Sky News).

While it looks like there are some quality businesses within the group, the attractiveness of this float will depend upon pricing and the debt levels held by the entity which eventually lists.

Another interesting share float in 2011 might be Intrepid Travel. Intrepid Travel provides adventure travel services. While the company is not as large as some of the other floats which might come along this year, it does have quite a strong brand. The business is was started 21 years ago. It made a pre-tax profit of $10 million from revenues of about $120 million.

Ascendia Retail is another name which keeps doing the rounds. This group contains Rebel Sport and was rumoured to be a starter for an IPO last year. However, given the negative sentiment toward listed retail companies right now, owner Archer Capital might be inclined to hold on until more positive signs emerge from this sector of the market. It's worth noting that Archer also owns MYOB and iNova Pharmaceuticals, both of which I presume it would be looking to sell out of at some stage.

Other retailers currently held by private equity firms which may eventually come back onto the market include Repco (owned by Unitas Capital) and Colorado Group (owned by Affinity Equity Partners) although according to this article in The Australian, Colorado may be some way off being in a position for a public offering.

Two other companies rumoured to be considering their IPO options are Link Market Services KKR's Seven Media Group, although these may end up happening in 2012 or beyond.


Sunday, January 30, 2011

Investing In Shares Or Property - Which Is Better?

This is a question which can almost cause good friends to come to blows. It seems that investing in residential property is such an emotional issue for some people. Well to add fuel to the fire I found the results of a study published last year found that investing in shares produced a better after tax return than investing in property.

The report was commissioned by the Australian Stock Exchange and prepared by Russell investments. It investigated the returns of a number of asset classes over the past 10 and 20 years taking into account the impact of investment costs, tax and borrowing on the on the final performance figures.

The headline result (certainly from the ASX's point of view) was that Australian shares outperformed all other asset classes on an after tax basis over 20 years for investors on both the lowest and highest marginal tax rates.

However, over 10 years, Australian residential investment property was the winner. The GFC had a major impact on the performance of Australian shares over that period.

While the long-term performance of Australian shares as pointed out by the report has been used for marketing purposes by the ASX, there are a number of other conclusions made by the report which are important for investors regardless of your preferred asset class.

Borrowing to invest has been a winning investment strategy. Both Australian shares and Australian residential investment property returns have more than offset the costs of borrowing to invest in these asset classes.

Tax is also an important consideration. It has had a major impact on the final performance figures. The report also points out that dividend imputation for shares and the capital gains tax discount for both shares and property give these asset classes an advantage over bonds and cash.

The report is only around 10 pages long and is well worth reading. Regardless of the actual performance figures, I found it provided an good framework within which to think about investment performance.

You can view a copy of the report here: http://www.russell.com/AU/_pdfs/market-reports/asx/ASX_Report_2010.pdf


Wednesday, January 12, 2011

Highest Dividend Paying Stocks In The ASX100

It might surprise you to learn that over the long term dividends make up a large part of a share portfolio's returns. In a study by Elroy Dimson, Paul Marsh and Mike Staunton (see Keeping faith with stocks) it was found that "The longer the investment horizon, the more important is dividend income."

And for retirees, dividends are the life blood of their investment portfolio. While growth in the value of the portfolio is important in order to keep pace with inflation, it is the steady stream of dividends which pays the bills.

Even though I'm not a retiree, I still like dividends because along with my regular savings, they provide me with the cash to make further investments without the need to sell existing ones.

So with all of that in mind, I thought it might be interesting to look at the dividend yields of the stocks that make up the ASX100. The table below lists the top 10 dividend paying stocks.

ASX
Code
Company Name Current
Price
Dividend
Yield
Franking Payout Ratio
DUE DUET Group $1.69 11.9% 0% 171%
SKIDA Spark Infrastructure Group $1.14 11.4% 0% 169%
TEL Telecom Corporation of New Zealand Limited $1.71 10.6% 0% 120%
TLS Telstra Corporation Limited $2.84 9.9% 100% 90%
MAP MAp Group $2.96 9.2% 0% -164%
GFF Goodman Fielder Limited $1.32 8.4% 20% 92%
WDC Westfield Group $9.60 8.2% 0% 116%
APA APA Group $4.15 8.1% 0% 169%
WAN West Australian Newspapers Holdings Limited $6.40 7.3% 100% 100%
CFX CFS Retail Property Trust $1.76 7.2% 0% 120%

Top Dividend Paying Stocks In The ASX100

The dividend yields on offer here range from 7.2% right up to 11.9%. However, as you might have noticed, a number of the stocks have payout ratios above 100%. This is probably not sustainable as it means these companies are paying out more in dividends than they are earning in profits.

Lets knock out those companies with a payout ratio of over 100% and see what we can find.

ASX
Code
Company Name Current
Price
Dividend
Yield
Franking Payout Ratio
TLS Telstra Corporation Limited $2.84 9.9% 100% 90%
GFF Goodman Fielder Limited $1.32 8.4% 20% 92%
QBE QBE Insurance Group Limited $18.14 7.1% 20% 66%
IOF ING Office Fund $0.57 6.9% 0% 70%
TAH Tabcorp Holdings Limited $7.13 6.8% 100% 71%
MYR Myer Holdings Limited $3.47 6.7% 100% 75%
CPA Commonwealth Property Office Fund $0.83 6.7% 0% 75%
NAB National Australia Bank Limited $23.89 6.6% 100% 73%
DJS David Jones Limited $4.75 6.5% 100% 91%
WBC Westpac Banking Corporation $22.06 6.5% 100% 72%

Highest Yielding Stocks With Payout Ratio Below 100%

The list has changed somewhat but with dividend yields ranging from 6.5% through to 9.9%, the income potential is still quite respectable.

Other Things To Check

The exercise we have just been through is a simple one. We would obviously need to do more research before committing any of our hard-earned cash to buying any of these shares. While not an exhaustive list, what follows are a couple of the items on my investment checklist - things I would check before investing..

One important factor I like to consider with any sharemarket investment in the level of debt and the company's ability to service that debt. So I'd be checking each of the company's debt to equity ratios and their interest coverage ratios (a measure of how able a company is to make its interest payments).

Dividend growth is another thing to consider. I like to see the dividend amount rising each year. It not only provides me with a growing income but also demonstrates that the business is growing and has strong cash flow.

What Have We Learnt?

I find this sort of comparative analysis to be very useful. It might be finding the best dividend paying stocks or the shares with the lowest price to earnings ratios or those with the highest return on equity - it doesn't really matter. What matters is looking at the stock market from all of these different angles and seeing how various investment opportunities stack up against one another.

I should point out that none of the shares mentioned in this post should be considered recommendations. Make sure you do your own research.


Tuesday, January 4, 2011

Best Shares To Buy In 2011

With 2010 out of the way, it's now time to turn our our attention to 2011. While I'm sure we'd all like to have a crystal ball which we could look into to see what shares prices have done up to the end of 2011, the reality is the future is unknown. So how can we best position our investment portfolios to grow in 2011? In other words, what are the best shares to buy in 2011.

Retail Shares?

One sector of the Australian stock market which has taken a pounding in recent times is the retail sector. Harvey Norman boss Gerry Harvey was pessimistic at the company's recent AGM. Discount retailer The Reject Shop, which has been an outstanding performer over recent years, shocked the market recently with a profit downgrade. The announcement saw The Reject Shop shares drop to below $13.00 from over $17.00. And shares in JB Hi-Fi have fallen in recent times as well over the uncertainty in near term retail sales figures.

It seems that consumers have slowed down their spending. Some theories to explain this phenomenon are interest rate rises, consumers saving more and paying down debt, the withdrawal of government stimulus spending and general uncertainty over the economic outlook. While any or all of these explanations may be true, perhaps the most important question any savvy investor should be asking is whether the change in sentiment points to a longer term change in spending habits or is just a short-term belt-tightening exercise.

But being the contrarian that I am, I can't help but wonder whether this might be a prime place to look for good shares to buy in 2011. There are a number of very good companies operating in this sector. By looking only at businesses which have conservative debt levels and a history of generating strong returns on capital I should be able to identity those companies which will be able to get through a retail downturn without needing undergo equity diluting capital raisings. And if I take a longer term view (and don't pay too much) I should see a decent return on my investment when retail sales return to normal.

Best Shares This Year The Worst Of Last Year?

Another interesting place to look for shares which may outperform this year is among last years losers. Those value investors among us might like to sift through the rubble to see if there is any value there. The theory is that these companies are currently unloved by the market and as such may be trading at bargain prices.

To get you started, here is a list of the 10 worst performing stocks in the ASX 100 index for the last year.

  • Downer EDI Ltd
  • Toll Hldgs Ltd
  • Primary Health Care Ltd
  • Aristocrat Leisure Ltd
  • Macquarie Group Ltd
  • Aquarius Platinum (Bermuda)
  • Fairfax Media Ltd
  • Harvey Norman Hldgs Ltd
  • Leighton Hldgs Ltd
  • QBE Insurance Group Ltd

Please note that these are not recommendations to buy. The list is merely a place to begin your search for a bargain. Make sure you do your home work though as there is often a very good reason for a company's share price to be marked down. It is your job to discover whether the share price punishment is justified.

Strong Aussie Dollar

One of the investment themes as we enter 2011 is the strong Australian dollar. As I write this article it has gone beyond parity and some economists are predicting even further strength. So when deciding what shares to buy in 2011 it might be worth looking at those companies which will benefit from the strong currency.

International travel is cheaper with a strong Aussie dollar. Australians travelling abroad have more purchasing power now and this may drive an increase in the number of Australians holidaying overseas. Obvious beneficiaries of this trend would be airlines like Qantas. Also Travel Agents like Flight Centre could do well.

Another sector which traditionally benefits from a stronger Australian currency is retailing. Those retailers who import their wares from overseas are able to source goods more cheaply and pocket some of these savings in the form of higher margins. However this year anecdotal evidence is that price discounting is eating away at any of these extra profits.

When using these broader investment themes to drive your share purchases, it's important to take price into account. The reason I bring this up is that the market may have already bid up the prices of companies expected to do well from the strong Aussie dollar. So much so that the share prices may already be unrealistically high.

Putting on my contrarian investor's hat once again, maybe another way to play the recent currency gains is to look for companies whose share prices have fallen as a result of the stronger dollar. As the market tends to overreact both on the upside and the downside, perhaps there is value to be found among exporters and other companies whose businesses suffer in times of higher exchange rates. As an added bonus, the share prices of these companies would benefit from renewed investor interest should the dollar fall again.

As I stated above, make sure you do your own research before making any purchases (none of the stocks mentioned in this article should be considered recommendations). Hopefully the ideas discussed will help you find some good shares to buy in 2011.