Just for a bit of fun, I thought I'd pick a few companies whose share prices look a little battered and bruised and compare their performance against the FTSE 250 over the next two/three years. I haven't done any research on these companies, and all I'll do is make a few cursory observations in their favour. I don't currently hold any shares in the companies I shall mention. Those of you who do read the blog from time to time will know that I tend to concentrate my efforts on trying to find bargains in the small/micro cap sector (see previous blogs).
For simplicity, I am going to allocate an equal (but fictional) investment in each of the eight companies.
The companies and their respective share prices at the close of play today are as follows:-
Aviva 318.8p
Cable and Wireless Worldwide 34.44p
Cable and Wireless Communications 32.12p
Game Group 23p
ITV 55.85p
Man Group. 206.1p
Thomas Cook 43.55p
Vodafone 162.85p
The share prices are the mid-prices given on the ADVFN monitor at the time of posting (17:40 Thurs. 25 Aug 2011).
The FTSE-250 finished the day at 10,021.39.
Starting with Aviva. Well known Life Insurer that pays a dividend of over 8%. If it holds the dividend for the foreseeable future then that's a pretty good return when you compare it against other investments.
The two Cable and Wireless companies. Proof that performance after a demerger can be as unimpressive as it was before, so far investors have had the opportunity to be disappointed twice as often. However, the yields from both companies are quite high (again if they can maintain them), and aren't both companies possible takeover targets?
Game group. Is this company seen in the same light as HMV? Looks to have better prospects to me, and a cursory glance seems to indicate that it is adapting and fighting back with a growing online presence.
ITV. Can still attract huge audiences for popular shows e.g. around 20m for the X-factor final and hence still attracts the advertisers. Apart from the BBC, does it really have any credible opposition in the UK? Just re-instated a dividend payment. Possible takeover target?
Man Group. Nice dividend. Possible takeover candidate.
Thomas Cook. Pessimists think TC could go bust or at the very least need to issue more equity. However, TC will be merging with the Co-op to make it the biggest UK tour operator. Despite the many issues facing TC, Russian acquistion looks promising, the Brits still love their package holidays and the chaos caused by the ash cloud should benefit companies like TC in the long run. At today's share price the yield is about 25%. Market obviously believes a cut is imminent, but if it isn't or it returns to the same levels in a year or two then what a fantastic return. Directors have been buying at current levels.
Finally, Vodafone. Dividend yield must be over 7% with the special dividend in January. Will the special dividend be a one off? Probably not.
You can clearly see that I haven't done much research, but I am interested to see how the performance of this portfolio pans out against the FTSE250 over the next two or three years. Just to stick my neck out, my guess is that this portfolio will out perform the FTSE250, but I'm not recommending it and I certainly haven't done this myself.
As I said at the beginning, it's just a bit of fun that fits in with my value and contrarian instincts, and on a monthly basis I shall return to compare performance.
Thursday, 25 August 2011
Tuesday, 23 August 2011
A doubled dividend works wonders
A very encouraging set of interim results from Densitron this morning. Caught me a little bit by surprise, since I wasn't expecting anything until September.
Revenues have increased by 31% and operating profit by 260%. The Chairman's statement indicates that these results were ahead of internal forecasts and that they are confident of meeting market expectations for the full year (EPS 1.49p) which puts the shares on a forward p/e of less than 8 (share price currently 11.6p). Seems far too low to me. Significantly the interim dividend has been increased 100% to 0.2p. I expect a further payment of 0.3p following the finals giving a yield of 4.3% for the full year.
I like their current focus on organic growth and growing the operating margin. India looks like it might provide a further substantial growth opportunity.
All in all, despite the uncertain global economic outlook and market gyrations, I see no reason to alter my views on my investment in Densitron, and shall enjoy the dividend payments whilst patiently waiting for what I hope will prove to be substantial capital growth in the medium to long term.
Surgical Innovations' share price continues to rise, and the market cap. is now around £50m. As mentioned before I took healthy profits from my investment here, but did I take them too soon? Clearly in the short term the answer is yes, although part of my reason for selling was that I couldn't see it multibagging in such a short period of time again.
The present market cap. is currently more than 7 times last year's revenue with a forward p/e of over 20. The shares look pretty fully valued to me. However, it will be interesting to watch. There is always the possibility of a takeover approach or a huge contract win etc. Besides, as I have often mentioned before in this blog, valuations of growth companies can get very heady indeed. Time will tell.
Revenues have increased by 31% and operating profit by 260%. The Chairman's statement indicates that these results were ahead of internal forecasts and that they are confident of meeting market expectations for the full year (EPS 1.49p) which puts the shares on a forward p/e of less than 8 (share price currently 11.6p). Seems far too low to me. Significantly the interim dividend has been increased 100% to 0.2p. I expect a further payment of 0.3p following the finals giving a yield of 4.3% for the full year.
I like their current focus on organic growth and growing the operating margin. India looks like it might provide a further substantial growth opportunity.
All in all, despite the uncertain global economic outlook and market gyrations, I see no reason to alter my views on my investment in Densitron, and shall enjoy the dividend payments whilst patiently waiting for what I hope will prove to be substantial capital growth in the medium to long term.
Surgical Innovations' share price continues to rise, and the market cap. is now around £50m. As mentioned before I took healthy profits from my investment here, but did I take them too soon? Clearly in the short term the answer is yes, although part of my reason for selling was that I couldn't see it multibagging in such a short period of time again.
The present market cap. is currently more than 7 times last year's revenue with a forward p/e of over 20. The shares look pretty fully valued to me. However, it will be interesting to watch. There is always the possibility of a takeover approach or a huge contract win etc. Besides, as I have often mentioned before in this blog, valuations of growth companies can get very heady indeed. Time will tell.
Friday, 19 August 2011
Miserable Mr Market
I see Mr Market is still feeling depressed at the moment, and undoubtedly he will create some bargains. However, quite a few company share prices that I have on my monitor seem resilient despite the recent sell-off. Early days yet though and Mr Market may get even more depressed and start handing out cheap shares on a plate. You can never predict market tops or bottoms with any confidence, and subsequent rises and falls generally take you by surprise. There's a great quote from Peter Lynch that I've included at the end of this blog.
In my opinion trying to second guess the market is a sure way to lose money, and as a stock picker I think the best you can do is to time your buying activity when you believe that the stock is cheap. Of course in markets like these there is always the risk that the stock gets cheaper still, so if you have the cash and are confident in your valuation methods then why not just buy some more. If you've used all your cash then just wait patiently for the real value to be recognised by the market.
Here's just one personal example. In 2002 I bought shares in Clarkson for around £2. The price looked a snip for a low p/e, debt free company with a healthy balance sheet paying what looked like a safe 7% dividend. However, Mr market got very depressed and decided that he would sell Clarkson for around £1.30 a few weeks later. If you take a look at Clarkson today you will see that the SP is around £11.35, and has been over £13. In other words the shares were cheap at £2, it's just that I didn't get in at the very bottom of the range, which is almost impossible to do on a regular basis due to the often irrational Mr Market and his moods.
At the time I was a relatively inexperienced investor, and I eventually sold my holding for around a 75% profit . Not bad, but given the capital appreciation and dividend rises over the years since, it would have been nice to just hold on for a while longer.
Anyway, here's Lynch's thought's about market timing (bear in mind that he's one of the best investors ever achieving a compound rate of 29.2% per annum.
"Every year I talk to the executives of a thousand companies, and I can't avoid hearing from the various gold bugs, interest-rate disciples, Federal Reserve watchers, and fiscal mystics quoted in the newspapers. Thousands of experts study overbought indicators, oversold indicators, head-and-shoulders patterns, put-call ratios, the Fed's policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can't predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack......All the major advances and declines have been surprises to me"
In my opinion trying to second guess the market is a sure way to lose money, and as a stock picker I think the best you can do is to time your buying activity when you believe that the stock is cheap. Of course in markets like these there is always the risk that the stock gets cheaper still, so if you have the cash and are confident in your valuation methods then why not just buy some more. If you've used all your cash then just wait patiently for the real value to be recognised by the market.
Here's just one personal example. In 2002 I bought shares in Clarkson for around £2. The price looked a snip for a low p/e, debt free company with a healthy balance sheet paying what looked like a safe 7% dividend. However, Mr market got very depressed and decided that he would sell Clarkson for around £1.30 a few weeks later. If you take a look at Clarkson today you will see that the SP is around £11.35, and has been over £13. In other words the shares were cheap at £2, it's just that I didn't get in at the very bottom of the range, which is almost impossible to do on a regular basis due to the often irrational Mr Market and his moods.
At the time I was a relatively inexperienced investor, and I eventually sold my holding for around a 75% profit . Not bad, but given the capital appreciation and dividend rises over the years since, it would have been nice to just hold on for a while longer.
Anyway, here's Lynch's thought's about market timing (bear in mind that he's one of the best investors ever achieving a compound rate of 29.2% per annum.
"Every year I talk to the executives of a thousand companies, and I can't avoid hearing from the various gold bugs, interest-rate disciples, Federal Reserve watchers, and fiscal mystics quoted in the newspapers. Thousands of experts study overbought indicators, oversold indicators, head-and-shoulders patterns, put-call ratios, the Fed's policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can't predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack......All the major advances and declines have been surprises to me"
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