Suggestions and ideas (pt. 1)
Since I’d been out of the loop for a little while, I decided in my last post to put together a little list of the stocks that were currently piquing my interest. That’s not a huge list – I confess I’m a little short on inspiration at the moment – so I also put a call out on Twitter. Along with that, a touch of snooping around over the last few days and a few e-mails from readers, I have something of a list of stocks to get me started in the new year. Researching some of these – alongside catching up with the bits of my portfolio that need more analysis – should keep me busy for the next few weeks.
To keep the post relatively short but hopefully interesting, I’ll list the stocks, along with a short description of what they do and my initial impressions. Most of these I haven’t looked at before in any real detail, if at all. The list is in no particular order. Scattered like my thoughts, I might say.
Finsbury Foods (FIF) – This bakery company, I recall, was recommended to me in an email by a reader a while ago – probably a year and a half. I turned it down then, and it’s a little more expensive now, but it’s also significantly less indebted, restructured and – probably more importantly – I try not to put too much stock in my past judgements given how my criteria evolve and analysis improves. At first glance, it looks relatively cheap on a P/E basis, and I like management’s tone in the annual report. More negatively, the company still looks rather commoditised. I’m not sure where their competitive advantage is.
Pennant International (PEN) – Looks profitable and has grown quickly. Seem to have their finger in a lot of pies, and it took me a little while to figure out where they make their money – mostly, it turns out, with ‘specialist training systems’ to the defence sector. This apparently includes ‘software emulation’, ‘hardware simulation’ and ‘virtual reality’, which all sounds rather exciting. They also develop public sector software; rather a 21st century business, by the sounds of it, and they won a massive contract last year – a good thumbs up. Looks like family insiders own a huge chunk of the business, though – over 70% – which does put me off.
MS International (MSI) – I remember this company from a little while ago, too – principally because I remember struggling to actually find anything out about it! They’re a manufacturing company of the heavy manufacturing variety – forgings, ‘superstructures’ and the like. Their largest segment – defence – was a little more vague in the annual report, as they often are, though looking at their website rather quickly clears up the confusion about what defence means! Anyway, it’s fairly cheap and historically very stable. The company’s also dripping with cash which looks like it might be surplus to working capital requirements, and ongoing cash generation looks good. Management between them hold a sizable chunk, and are likely a close-knit bunch (they’ve been together a long time). That needs a look.
Caretech (CTH) – This is a company I haven’t seen before, but posted a very strong set of end-year figures last month. Some of the gain comes about from one-offs; but their underlying figures look good, too. The group provides services for children and adults who need support – learning disabilities, assisted living, eating disorders etc. This immediately raises a few questions for me. Firstly – how are they funded? It seems likely to be predominantly government-funded, which always concerns me a little. Government/private partnerships put me off as an investor, because they interfere with market mechanisms. Secondly – and call me a bleeding heart leftie – private companies in care provision, as far as public perception goes, seem to have a pretty bad track record. Some, I’m sure, are excellent. The ones that aren’t (as I say, government/private partnerships open themselves up to all sorts of loopholes, inefficiencies and bad practices) are morally questionable ticking time bombs. Their business model needs scrutiny. Also quite indebted but, by last year’s figures, rather cheap.
Games Workshop (GAW) – I really like this company. It’s pure intellectual property and the network effect; they run hobby centres and own/created the IP for the table-top miniature games Warhammer and Warhammer 40k. They’ve been around doing the same thing for a long time and make good returns on capital as a result. Customers are loyal, long-standing and the business model encourages repeat custom. As a result, it’s not particularly cheap – but the price has come down recently fairly substantially.
That seems a decent place to stop – about half of the companies. I’ll rattle off the rest tomorrow in a similar style post. As ever, drop me a line in the comments if you think there’s some I’ve missed but might be interested in. I should note that mining companies are too far out of my comfort zone/competence and, in my opinion, require a particular set of skills and knowledge to analyse which I don’t have. Apart from that, I’m trying to broaden my horizons!