Each week a professional investor tells MoneyWeek where he’d put his money now. This week, Derek Stuart, manager of the Artemis Special Situations Fund, picks five of his favourite stocks.
Remember ‘irrational exuberance’? Well, in my view, irrational pessimism is now blighting stockmarkets worldwide. There are also echoes today of Jim Slater’s investment tips for 1975 – “An ample supply of tins of baked beans, a bicycle, krugerrands and a shot-gun.” I don’t know – no one does – if we’re at or near the bottom, either in terms of economies or stockmarkets. Forecasting macro-matters is a fickle business, wrong much more often than it’s right. What I do know is that I can now buy – and am buying – good companies at prices I’ve never seen before (after 18 years in this industry) and do not expect to see again.
Take, for example, consumer goods firm Unilever (LSE:ULVR), a core holding. Almost half of its business is in emerging markets, which are as quick to recover as they are fast to fall. It’s seen as staid and the market dislikes it. Yet under new senior management, Unilever is reinvigorating itself. Many seem to think the world is coming to an end, but we don’t. And if we’re right, Unilever will do well.
The oil services company Wood Group (LSE:WG) is another stock that’s been out of favour despite its excellent record of success in a brutally competitive sector. Its shares have fallen along with the oil price since last summer, and now trade on a lowly price/earnings (p/e) multiple of 6.5 times against the market’s nine times. While spending by its customers will be slow, this is fully reflected in the share price, a fact not missed by the management team who have recently invested heavily in the shares.
Perception and reality, I find, can be as distant in stockmarkets as they are in real life. Industrial group Delta (LSE:DLTA) is almost dismissed by some for being half-asleep. Yet it has changed radically, shedding unwanted assets to leave a defensive core that manufactures steel products (fencing, poles, etc) for sale into public sector-funded infrastructure in Australia. Substantial cash on the balance sheet has been part-deployed to contain what was once a crippling pension fund. Full resolution of this should eventually allow a re-rating of the shares – and meanwhile the dividend provides an attractive 7% yield.
We also like Lloyds’ insurer Omega Insurance (LSE:OIH). Significant hurricane activity last year and the disruption caused by the failure of AIG have improved ratings prospects for the insurance sector. Omega has an outstanding, long-term record and is in the process of raising fresh capital to take advantage of this outlook.
What of banks and financial services firms? No way, most people say. But look at Close Brothers (LSE:CBG), another firm with great promise. Bid approaches in late 2007 and early 2008 prompted a re-think for the group. Close has been quietly refocusing under strengthened management, de-emphasising volatile transaction-related activities in favour of more stable lending and wealth management. The business is strongly capitalised with a healthy deposit base and a risk-averse approach to lending. It should do well as the mainstream banks struggle to return to business as usual. And it’s paying investors a handsome 7% yield.
Overall, in these testing times of corporate Darwinism, these five firms should not only survive, but thrive.
| The stocks Derek Stuart likes | |||
|---|---|---|---|
| 12-month high | 12-month low | Now | |
| Unilever | 1,786p | 1,249p | 1,628p |
| Wood Group | 503.50p | 151.80p | 213.50p |
| Delta | 140p | 68p | 91p |
| Omega Insurance | 174p | 128p | 157p |
| Close Brothers | 959.50p | 438.50p | 460p |