It’s grim out there. In the US the subprime debacle is gathering speed, banks are desperate for capital and starting to slash workforces; consumers are belt-tightening fast and house prices are still in freefall.
Here the FTSE 100 fell 3% on Tuesday alone and is now 10% off the highs of last year; our currency is wobbling; the most recent inflation numbers were frightening (factory-gate prices rose at 5% in December and, according to Mysupermarket.com, the price of a basket of food bought here is up 12% in the last year); and, of course, our property market is in just as dismal a state as those in the US, Ireland and Spain.
Elsewhere most European markets are down 7%-8% so far this year, Japan is down 11%, the Hang Seng 12%, while the oil price is still knocking around $90 and in Indonesia the government has had to step in to calm street protests over record soy bean prices.
Not much of this surprises us (except for the Japan bit – I really expected it to hold up better), but it does rather beg the question as to what exactly one can do with one’s money at the moment without taking undue levels of risk. I’ve outlined some of my own thoughts on this over the last few weeks and I’ll come back to them next week, but for now I’d like to offer up the ideas of a far better and far more experienced investor than myself, veteran investor Jim Slater.
This week, at a small breakfast organised by Jonathan Davis of Independent Investor, Jim was not prepared to make a forecast for the market as a whole (“I certainly don’t know,” he said when asked to predict its direction), but that does not mean his own money is idle. Far from it.
His main interest at the moment is soft commodities. He is still a believer in the commodities supercycle, but thinks the easy money has been made in industrial metals and so has shifted his focus to agriculture and notably to grain farming in Brazil (which he loves, by the way, for its strong currency, its huge water supplies, its stable politics and its energy independence). He is also still interested in investing in water, in oil services, in infrastructure and in gold.
On a stock-specific level he reminded us that the best way (in that it has always worked pretty well for him) to pick stocks is to look not just at p/e and growth, but at the two together. With this in mind he pointed to two promising stocks in oil services: James Fisher (FSJ) (on a p/e of 14 times but growing its earnings at 28% a year) and Cape (CIU) (nine times, 20%).
In the resources sector he likes gold miner Centamin Egypt (CEY) and Belvedere Resources (BEL.CN). Finally, he mentioned a few good growth stocks. He isn’t finding these as easy to invest in as he once did: the growth coming through is “less reliable” than it was and the market is in a “punishing mood”. However, three that Jim really does think look cheap, given their current growth rates, are Dominos Pizza (DOM) (20 times, 18%), Goals Soccer Centres (GOAL) (26 times, 34%) and Advanced Medical Solutions (AMS) (20 times, 50%).