Saturday 22 December 2012

Xmas trading play in Tesco?

Is Tesco a Christmas trading candidate?

December 22, 2012

I was looking at the Retail sector this morning, and noticed that Tesco has been moving higher since  mid-October, and is now within spitting distance of its 350p year high. 


Should it break this high, there is a good chance it will move up to close the gap opened up in January at 385p, when it issued a profit warning (its first in 20 years). The new CEO Phil Clarke has been in position for some time now, so has had time to make some fundamental changes to get the UK's number 1 supermarket chain back on track.

Here is an excerpt from The Guardian on December 5:
"The failure of the US operation, after investment of more than £1bn, also cost the retailer's deputy chief executive, Tim Mason (below), his job. Mason, who masterminded the US business from the opening of the first Fresh & Easy store near Los Angeles five years ago, had spent 30 years with the grocer and is expected to walk away with a total payoff of about £5.7m.
Tesco chief executive Philip Clarke has called in investment bankers to advise on what to do with the Fresh & Easy chain, which has 200 stores. However, he admitted Tesco was most likely to "exit" the business, which it had once hoped to build into a huge chain that could take on Walmart."

Here we spot a catalyst for the share price in the form of stemming the losses from the US, with the potential to see Tesco finally start to catch up with its UK rivals after putting in place an important investment plan, which should be completed in 18 months.
So share price momentum is good, we see a potential catalyst in view, and valuation remains attractive at a forward PE (based on Feb 2013 EPS) of just over 10x and a dividend yield of well over 4%. 

A key point to remember with Tesco: it has continuously raised the annual dividends paid every year for the past 10 years, and so is a FTSE 100 "dividend aristocrat" - there are not so many of those, and Tesco is one of the cheapest right now. I will keep a close eye on TSCO, and add to my existing position if it breaks through 350p to the upside in the near future...

Disclaimer: I already own TSCO shares.

Friday 21 December 2012

I like UK, European insurers...

Why I have recently bought UK, European insurers

December 21, 2012

Scanning through the lists of European equity sectors to figure out where the strongest price momentum action has been in European equities, it is clear that the year-end equity market rally has been led by Financials, notably Banks and Insurance companies.

Now, there are lots of reasons why I am not terribly keen on buying Bank shares at the moment - perhaps I am prejudiced by the fact that I have recently been laid off by one of the Big 4 UK banks! But there are good fundamental reasons why I am not keen on them - the threat of new regulations hurting profitability (Vickers Commission, Basel III), low dividend yields as they need to keep cash rather than pay it out to shareholders, and the risk that there are more gremlins like the Libor fixing scandal still to come out of the woodwork. 

So I focused my efforts on the insurers, which by and large are not subject to this long list of issues. So what was I looking for? I was looking for insurers that satisifed 4 key criteria:

1. Strong price momentum culminating in a share price breakout up and out of the previous trading range. A number of stocks satisfied this requirement.

2. High and sustainable dividend yield; again, not a real shortage of high yielders among insurers, with a payout ratio (dividends as a proportion of earnings) below 70%, to reduce any financial risk.

3.  Cheap valuation - on valuation measures other than dividend yield, like price/book, a simple but interesting value measure for insurance companies. 

4. An interesting business model (potential takeover candidate, strong emerging market exposure, dominant position in domestic market). 

The result? I whittled down the European insurance sector to 3 names which I have put some of my hard-earned savings into - 

Phoenix Group (PHNX) - a closed-fund UK life insurer offering a dividend yield well over 7%, a very low valuation and which I think could be a potential takeover candidate one day. The share price has recently been in a strong uptrend, and I think could esily spike to around 650p from the current 545p once it clears the obvious resistance level at just over 550p.

Chart forPhoenix Group Holdings (PHNX.L)
Euler & Hermes (ELE) - a French credit insurer that has strong price momentum, low price/book valuation and an attractive dividend yield. It recently broke to a new year high at EUR64, usually a good sign that it will make further gains ahead. I would look to at least 10% here plus the 7%+ dividend yield, giving total return potential not far from 20%. 

CNP (CNP) - another French insurer, this time a life insurer that is big in France but also in Brazil, giving it an interesting emerging market growth flavour. Similar profile to Euler & Hermes in terms of dividend yield, price/book valuation and strong upwards price momentum. With this stock I would aim for at least the year high at EUR12.75 versus the recent EUR11.41 share price, plus again a 7%-odd dividend yield to collect in April next year.

Let's see how these stock picks get on in the weeks ahead... Now to find another sector or asset class with strong price momentum and solid fundamentals to invest in...

Why read this investing blog?

Why read this investing blog?

21 December 2012

You have savings, and are fed up with the paltry interest rates on offer from UK banks. Government bonds, insurance policies and the like are little better. So where to invest your hard-earned cash? 

I want to write a down-to-earth basic finance and investing blog with the aim of giving interested investors some signposts to investing their own money, aiming at long-term capital gain and regular income. 

It may not sound super-sexy, but that's sort of the point.  Successful investing should be a little like watching paint dry much of the time, because there are other, very interesting things to do in life aside from investing your savings, important though that is!

While my professional background is largely in European equity markets as a so-called Market Strategist (writing and marketing research on stocks and shares in the UK and Continental Europe), I have a lot of interest in other types of financial asset (bonds, cash deposits, precious metals, property etc.). So I will be writing about those asset classes too.  

So, please read this blog, which I will update regularly every week, if you are interested in the process of investing your hard-earned cash to grow over the long-term, using a variety of different asset classes but with a very close eye on the level of risk taken.