Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Paul Mumford, senior fund manager, Cavendish Asset Management.
The approach I take to investing is relatively simple. I seek to buy stocks that are undervalued, overlooked by investors and have real potential for stock market gains. Very often these securities can be found mainly in out-of-favour sectors. But at the moment, there are bucket-loads of listed names that fit this profile. I’ve selected three that have particularly caught my eye and are fairly niche.
First, there is Northern Petroleum (LSE: NOP), an Aim-listed oil and gas exploration company. This firm appeals to me because it’s one of the few oil and gas companies whose share price hasn’t really moved despite some good newsflow. For example, in the near term, some transformational newsflow is expected as a result of a €100m joint venture that Northern has in Sicily with Shell Italia. The firm has been using Shell’s 3D seismic evaluation to explore the area. A decision on where to drill looks set to be made before the end of the first quarter of 2011.
In the medium-term, there’s lots of excitement around exploration activity in the Adriatic. In the mid-90s, Northern acquired substantial oil and gas reserves in the area from Shell at an attractive price, when oil prices were much lower than they are now. It is only a matter of time before a partner is found to exploit the potential of the region. Meanwhile, its interests in the Netherlands alone are worth the current share price. But if you add to this the Adriatic and Sicily, and also take into account the fact that the group is debt free with a cash balance of approximately €25.8m, Northern strikes me as substantially undervalued.
Another company which seems to me to have been overlooked by some investors – despite being over 120 years old – is Henry Boot (LSE: BHY). Henry Boot is a land, property, construction and plant company. It has one of the largest land banks in the UK, with interests in 8,162 acres of land valued at £54.9m. A large proportion of this is optioned which means that the value is less than if they owned it outright. But Henry Boot focuses on gaining planning permission for the acreage it owns and then either developing it for investment, or selling it on. Once this planning permission is granted, the value of the land increases significantly. The net asset value of the company is 136p, but the market price is just 90p. So it’s standing at a good discount to NAV. And bearing in mind land values have fallen, this valuation is conservative. Henry Boot is predominantly a land owner, not a house builder, so its share price hasn’t recovered as much as some of the house builders. It simply seems to have slipped under investors’ radars.
The third company that I’ve selected is more speculative. Tanzanite One (LSE: TNZ) is a miner of the semi-precious gemstone tanzanite, found only in the Simanjiro district of northern Tanzania. The company’s half-year results show revenues up by 74% to $8.6m. The balance sheet also looks good with cash of $1.76 million and inventories of $3.94 million. In the third quarter, the company realised revenues of $2.2m and production is currently going well. Over the year, sales of tanzanite jewellery are expected to take off – it is being used in replica ‘Diana’-style engagement rings and other jewellery related to the royal wedding. The share price is currently 16p, down sharply from a few months ago, so there is considerable potential for capital appreciation over the short-term.