Vesuvius - set to erupt?

Regular readers of my blog will know that my investing style is to try and find interesting companies at what I perceive to be bargain basement prices, and then hold for the long term in the hope that the share price multi-bags. I have been very fortunate to have had a number of successes, and I hope there will be many more to come in future.

However, just for a bit of fun, I've decided to try some virtual trading. I intend to report on my virtual trades via this blog to see if I'm any good at it. I don't intend to move away from my long term buy and hold strategy because it has worked well for me so far. In the distant past, I have found it to be very frustrating after thoroughly researching a small/micro-cap company only to watch as the company's share price multi-bags (long term) when you thought how clever you were selling it earlier to realise a (mere) double digit gain.  As mentioned yesterday, my mantra is if the story remains in tact, and the company is growing at an acceptable rate, then just buy at a good price and hold (I would add top-up on the dips when Mr Market turns miserable and throws the baby out with the bathwater!!). What is it that Warren Buffett says? Our favourite holding period is forever (or words to that effect).

Anyway, here goes, my first trade is to buy shares in a company called Vesuvius at £4.57.  Please note that I haven't researched this company in any depth. What I do know is that the company was originally part of Cookson group until relatively recently. The company demerged with it's spin-off called Alent group.

Vesuvius is a global leader in metal flow engineering, developing, manufacturing and marketing mission-critical ceramic consumable products and systems to demanding applications, primarily in the global steel and foundry industries. Vesuvius also supplies fabricated precious metals to the jewellery industry in Europe and has significant precious metals recycling operations.

Why the trade? Firstly the share price is off it's recent highs of £5+, Directors have been recent purchasers of the shares (not insubstantial amounts), the company pays a dividend of over 3% (easily covered by earnings), it boasts a single digit p/e ratio, and doesn't have much interest on the BBs.

Whilst their interim management statement wasn't exactly inspiring, investors might have missed the fact that margins have improved and management are confident in meeting expectations for the full year.

In addition, Peter Lynch likes "spin-offs". He says:- "Spinoffs of divisions or parts of companies into separate, freestanding entities often result in astoundingly lucrative investments."

I'll let you know when I make a virtual sale, and keep you updated with my virtual trading activity.

Nothing to lose, or indeed nothing to gain.

The Micro-caps of today can become the Large-caps of tomorrow!

Two news items in this week's FT weekend have caught my eye. Firstly there is a full page article entitled "Pharma opens new front in war on cancer". The article is essentially suggesting that the big pharmas may be on the cusp of the biggest breakthrough in cancer therapy for decades, and goes on to describe how several companies including Bristol Myers Squibb, Roche, AstraZeneca, Merck and Glaxo are developing new block buster drugs which could be worth several billions of pounds in revenues should they prove successful.

First and foremost let's hope that most are successful, and that the breakthrough proves to be as exciting as oncologists believe it could be. These drugs could really open up a whole new front in the war on cancer, and potentially prolong and save the lives of many thousands of people.

From an investment point of view, if these companies are successful with their pipeline drugs then clearly their valuations will increase substantially by the boost to their earnings. However, there are a number of hurdles to overcome yet, and it's difficult to predict the potential winners from the also-rans.

It did get me thinking about a company I hold shares in though.

Angle at £35m, is a minnow in comparison to the pharmas mentioned above, but it's Parsortix device is potentially a pivotal tool in any big advances in fighting a whole range of cancers. A non-invasive (simple blood test) way of monitoring the effectiveness of existing and potential drugs (and combinations) in the war on cancer has got to be highly desirable.

A lack of newsflow in recent weeks has meant that Angle's share price has dipped from it's highs whilst the company awaits further feedback from Key Opinion Leaders. However, if the feedback for the Parsortix device continues to be favourable then I fully expect substantial sales to follow, and the share price to resume it's upward trajectory, although ultimately I expect the company to be bought out by one of the majors. Angle have already achieved CE approval for their device, and currently await FDA approval.

The FT Money section also includes a small article on insurance fraud. Most notable is a 34% rise this year in the number of bogus car insurance claims. In fact, motoring accounts for more than three-fifths of fraudulent insurance claims. How long before insurers insist on a Telematics black box in every car? Not long methinks. I'm hanging on tightly to my Trakm8 shares. Right place, at the right time? Here's hoping. Trakm8 is a profitable, cash generative company in a potentially explosive growth industry. The shares are very modestly priced given their prospects.

In a recent blog, I mentioned that buying shares in relatively illiquid small/micro-cap stocks required a "strong stomach" as price fluctuations are often quite severe. Trakm8 is a good example of this type of stock. In my experience, as a long term investor, if the story remains in tact, it's best just to buy and hold. The micro-caps of today can soon become the large-caps of tomorrow!!

Finally, talking of large -cap companies, John Lee has written a brief article in todays' FT and has mentioned that he recently bought shares in Morrison's based on a 6% yield, activist shareholder base and freehold property assets. John Lee is an excellent value investor and ISA millionaire.

If I was interested in an income based portfolio, I'd definitely be adding Morrison's, alongside Sainsbury's, Tesco, GlaxosmithKline and Direct Line. Quality companies which are highly unlikely to go bust anytime soon and pay dividends around the 5% mark.

Avesco - interims due mid-June

Avesco should be reporting interim results around the middle of June. This is an even year which includes the Winter Olympics, the World Cup and the Commonwealth Games. These events should boost earnings, and hopefully expectations for the full year will be in-line with management guidance.

I do expect some exceptional costs associated with their recent restructuring, but this is a cash generative company valued at a substantial discount to NAV which currently pays a generous 5% dividend. What the market may also have overlooked is that Avesco recently bought back 30% of its share capital. This should substantially boost future earnings, and indeed dividend payouts. I expect a hike in the interim and final dividend distribution. Please see my reasoning from a previous blog:-

http://michae1mouse.blogspot.co.uk/2013/12/proposed-share-buy-back-and.html

Other recent news items from Avesco's  website include "With CT around the world":-

http://www.ct-group.com/news/ct-around-world

"JVR and Creative Technology Holland Combine Their efforts:-

http://www.ct-group.com/news/%EF%BB%BF%EF%BB%BF%EF%BB%BFjvr-and-creative-technology-holland-combine-their-efforts

and

"CT Streamlines European Operational Structure":-

http://www.ct-group.com/news/ct-streamlines-european-operational-structure

For investors, it's worthwhile visiting their facebook page on a regular basis to keep abreast of the projects they are involved with on a global scale.

https://www.facebook.com/creativetechnologygroup

Avesco has been a fantastic investment for me since I first bought shares back in 2009. However, the company with a market cap. of less than £20m still looks incredibly cheap on all sorts of measures.

http://uk.advfn.com/p.php?pid=charts&symbol=LSE%3AAVS

Please note that the sudden dip on the chart from over £2 to the current price relates to a special dividend payout to shareholders of £1.10 per share.