Every week, a professional investor tells MoneyWeek where he’d put his money now. This week: Andrew Harwood, managing director, CFS Independent
Everyone seems to be worried about subprime lending these days, but our basic economic problems are easy to understand. Personal and national debt are simply too high. Lenders have been awash with funds and eager to lend to anyone, regardless of their ability to repay the debt.
But as the credit crunch hits, lending is drying up while public spending will also ultimately fall. So it is not enough to look at profit forecasts based on current demand. A fall in demand caused by tighter credit, and a resultant drop in profits is a real possibility. But timing a downturn is hard to predict because political interference can artificially prop up spending. So what should we invest in?
Gold is considered a hedge against uncertainty. Its price has now breached $800 an ounce. But gold can fall sharply and without warning. So this ‘safe haven’ could be a risky gamble. You could hedge investments by buying or selling futures and options. But this should only be considered for hedging portfolios and not for speculation. I would rather invest in quality FTSE stocks, attractively priced, which will act as a counter to a fall in profits generally.
Firestone Diamonds (FDI) is a little known Aim company that produces and explores for diamonds. Its main focus is to increase current production and continue to bulk sample its property in Botswana. It also has a number of other exciting projects, all at an advanced stage. The key point of interest is the 86 kimberlites (diamond-rich rock formations), of which 21 have already yielded diamonds. Around 5% of kimberlites can be expected to prove economic within this region. Hence it’s not surprising that CEO Phillip Kenney is so optimistic about Firestone’s prospects over the next 12 months. Bulk sampling of between 25 and 30 kimberlites is expected during 2008, with the most likely targets being sampled first.
Seeing Machines (SEE) has developed technology that can read visual activity. Applications can spot signs that someone is falling asleep while driving, or detect developing glaucoma through a new glaucoma-testing machine requiring almost no input from the patient. This Aim-listed firm has several other capabilities that are now being rolled out, and I believe it has a lot of potential.
Venue Solutions (VSH) is another exciting Aim firm. As well as providing media solutions to large venues, including The Emirates Stadium, it has invested heavily in “Your Day”, owning more than 60% of the shares. “Your Day” is a technology that produces personalised CDs of theme-park rides that can be bought by visitors in the same way as they have traditionally purchased photographs in the past. The company has been experiencing installation delays at Alton Towers, its inaugural contract, but the job is now nearly complete and the system operating successfully. The delays have affected the share price – but not the potential.
The stocks Andrew Harwood likes
Stock, 12mth high, 12mth low, Now
Firestone Diamonds, 168.5p, 101.5p, 115.5p
Seeing Machines, 3.75p, 1.75p, 2p
Venue Solutions, 26.5p, 12.25p, 12.25p