The more opportunistic London rioters have been grabbing plasma TVs and trainers in the mayhem. While it’s pure burglary, at least there’s some rationale to their criminality.
Do you want to snag a bargain in the equivalent stock market furore? I’ll quickly run through a few things I’ve been looking at or even buying, just to give you some food for thought.
Disclaimer and warning: These are NOT recommendations for you to buy. They are at most a few ideas for further research. As ever any decisions you make are your own, and your trades are not my responsibility. I’ve written what I believe to be true, but it might be wrong. These are fast markets1 and there’s no reason why you have to get involved.
Lower risk ideas
All shares are much higher risk than cash or bonds, and you can lose all your money. That said, the following look good opportunities for more risk-averse equity investors.
Tesco
You can now buy Tesco at around the same price Warren Buffett paid when he first bought into the supermarket everyone loves to hate. Stonking 4.3% forward yield from one of Britain’s most consistent dividend risers. Great overseas prospects, and solid asset backing.
Weir Group
This FTSE 100 engineer fell nearly 9% on Monday, just a few days after it reported record orders and great profit and sales growth. It is closely tied to the commodities industry that was flavor of the month a month ago. Looks cheap, on a PEG rating 0.5. I suspect hedge fund dumping.
iShares’ Australia ETF
A few weeks ago Australia was a safe haven. Now its stock market is officially in bear mode, with 20%+ declines in the past three months. The iShares Australia ETF (Ticker: SAUS) is an easy way to buy into this commodity rich list.
RIT Capital Partners
I’ve written about RIT Capital Partners before. The Rothchild investment trust is one of the nimblest out there, but it’s falling like a stone and is now back on an estimated discount to NAV of nearly 7% – that’s quite big for this trust. Some of the income investment trusts are moving to a discount, too.
Halma
The share price of this superb manufacturer of safety-orientated devices (Ticker: HLMA) soared out of the recession, yet profits didn’t stop growing even during the worst of the downturn. It’s got one of the UK’s best dividend records, too, and although the forward yield is only 2.7% it has grown strongly in the past and is more than twice covered.
Medium risk ideas
A trio of ideas here.
Tullow Oil
Down nearly 25% in five days and more than a third off its highs in April, Tullow (LSE: TLW) is an £8.5 billion oil and gas explorer with operations right around the world. A fair bit of debt, true, but if you are one of the legions of peak oilers, it could be a fresh opportunity to pick up a quality asset.
Xstrata
Xstrata has moved almost in lockstep with Tullow, despite being in the mining sector and again reporting positive results. Funny how China has suddenly stopped industrializing, eh? I’ve avoided these sorts of companies for years (and before the 2008 crash if I’m honest) but they’re getting interesting. Again I suspect hedge fund dumping.
City Natural Resources High Yield Trust
This investment trust (Ticker: CYN) could be a good way to get into commodities if you don’t want to invest in individual shares. Be warned it’s very volatile, and despite the name the yield is tiny. Indeed, it harks back to a time when commodity companies paid big dividends, which shows how far they could yet fall. BHP Billiton (Ticker: BLT) could be a better bet for income seekers – massively diversified, and the yield is back above 3%.
High risk ideas
I repeat, shares could easily fall another 10-20% or more from here. But if you want to take a chance, here’s a few risky things I’ve been looking at.
Polar Capital Technology Trust Subscription Shares
A few weeks ago there was a new tech bubble in full swing, although everyone has seemingly forgotten about that now. If you want to take a big punt on things going back to usual, then these subscription shares (Ticker: PCTS), which key off the Polar Capital Technology Trust (Ticker: PCT), could prove lucrative – they were trading nearly four times higher a few months ago. They expire in March 2014, with the option to buy PCT shares at 478p. That trust currently costs 310p, so it’s a not inconsiderable mountain to climb in two and a half years.
Artemis Alpha Trust Subscription Shares
Artemis Alpha Trust (Ticker: ATS) is a global fund with a bias towards energy and commodity companies. The trust’s subscription shares (Ticker: ATSS) have until 2017 to run, so plenty of time to recover. For that reason there’s a lot of time value in the share price, but that hasn’t stopped them moving in a very volatile fashion in the past few days.
Medusa Mining
Gold is at an all-time high in dollar terms, yet Medusa Mining (Ticker: MML) is down 25% since the end of May. In the 2008 downturn miners were dumped because of funding fears, but Medusa has over $100 million in cash. The price has run up sharply in the past year, but if you’re late getting gold exposure (like me) it might be an option. Centamin (Ticker: CEY) is similar, and similarly risky in terms of emerging market exposure.
Finally, given all the various potential bargains around and about, you could obviously do worse than just buy an index tracker. Pound cost averaging is a good approach when buying in volatile markets.
Readers, what have you been doing in the crash? If you’ve been buying or selling anything please let us know below.
- Yields and prices are as of close on 8 August. [↩]
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FTSE 4791! That was fun. Is it over? The speculation that this is a shake-down of some hedgies is hugely comforting, can only hope it proves true 🙂 Maybe this is a 1987 rather than 2008.
Things I hold: ELTA went to a very large discount this morning, though standard arguments about PE houses apply (gearing, self-valued NAV, etc); caveat emptor.
I’ve just been buying trackers, for the last few days. Emerging Markets have sold off worse than the FTSE.
@T.I. – Good article & some good ideas to look into.
Thing I’ve bought – HG Capital Trust Sub Shares (HGTS). Brave call?
Things I sold (last week) – HG Capital (HGT), Bumi
Things I hold – BARC & been buying more (good money after bad?).
@ Lemondy – I topped up on ELTA too but a bit early, considering another buy at current levels.
Hats off to you Monevator – you were right last week. So much for the correction.
Emerging markets look cheap and I’ve been topping up holdings of ITs in this area today. Some of the JPM IT subscription shares look good value too in this area – particularly JAIS and JIIS.
Australia looks like a good play among developed markets – it is closer to its 2009 lows than most. I hold the IAPD ETF (which I think is almost 50% in Australian stocks) but the Australia ETF would allow better exposure to miners/commodities.
Not sure about oil (in spite of holding some myself) – if the oil price falls into a multi-month slump we could still see further value develop here.
On the home front some nice valuations opening up among large caps – BAE I see is now at a 6 year low.
I passed on Tesco at Warren Buffet’s last purchase, whcih I estimaetd at 380 and had an alert for. But at 361, even though I only make the yield 4% it was too hard to pass up.
RIT, loading up on MRCH, it’s hard to know which way to turn. I’m gettign close to shifting my Cash ISA into my shares ISA for later on this month 😉
I topped up on Aviva and lowered my average buying price into the bargain.
A FTSE 100 giant yielding almost 8%, covered twice and with a PE ratio of about 7. £1 of assets for about 55p. I’d be mad not to.
I’ve also learned to avoid any small cap AIM listed stocks. They’ve been totally hammered. If/when these ever do the business I’m going to sell the lot and stick to FTSE 350 stocks. I’d do so now if that side of my portfolio wasn’t down 35-40% (as opposed to last week where I was in profit by about 12%.) Size matters.
Templeton Emerging Markets IT… down 20%. BHP Biliton… all the riches of the globe! AstraZeneca… great divvies!
Ooh, lots of intriguing suggestions everyone. Plenty to ponder here.
Thanks!
The US markets have closed up over 5% on the Fed’s suggestion interest rates will remain low until 2013. I think the commodity / gold / emerging market trend has a good chance of resuming again now. So while I instinctively prefer the more defensive suggestions above for further investigation, I wonder if it’s better to think about adding some Beta (i.e. market following stocks) to my portfolio…
Great article, very interesting.
Can I ask a question, how are you arriving at an estimate of RIT being at a 7% discount ?
Kind regards
Mark
I have gone on a bit of a buying spree. I have bought shares in Tesco and BT. They probably haven’t bottomed out yet, but are currently available at prices I am happy to buy. I have also bought Templeton Emerging Markets (which is now available at a mouthwatering discount).
I have topped up a bit on Aviva.
I am seriously tempted by Astra Zeneca, Royal Dutch Shell B and Xtrata. I bought some Xtrata shares years ago when they were available for a slightly lower price than what they are now.
I have been keeping an eye on RIT capital, Unilever, and Reckitt Benckiser for a while. They are still too pricey for me.
The thing, though, is at some level I am a bit uneasy. If we look beyond shares at the macro-economics, the scene is scary: natural resources dwindling, the biggest property bubble bursting, the slow but inevitable unravelling of the Eurozone (death by billion debts), and poor growth forecasts for most of the Western countries.
It’s all very well to pat my back about how I am being clever in buying these stocks when others are getting out, and repeating to myself selective quotes of Warren Buffet, but if you can keep your head when all others are losing theirs around you, perhaps you have misread the situation.
How I’d wish to know what the markets would be in six months, or a year or five years. But my pet-Sybil has a head-cold; I can’t prise out an answer from her.
Forgot to say I also looked at HGTS last week, mainly because it’s intraday fall on Friday looked crazy. I did very well with it earlier in the year. Overall I only hold about 5 to 10% in subs and I’m towards the upper end of my risk tolerance for them now. I do like the longer time horizon of ATSS though.
@Mark — It was pulled from one of the data providers NAV estimates, forget which. They are usually fairly accurate with their algorithms though the volatility and that we were at the tail end since the last official update may have attenuated it here. Remember I wrote this post on Monday night, also, which was last years in terms of these markets!
To which point, WEIR eh? 🙂
I’m liking the look of centrica, scottish and southern energy, man group, halma, vedanta resources, unilever, royal dutch shell and bhp biliton as pure value. Also looking at smith and nephew based on the growing number of hip and knee ops that are gonna be needed.
Monevator, I agree – the miners have taken an overdone beating.
@Alan and @Ian – I too have topped up my Aviva holding to lower my average buying price as well as RSA (yesterday) which went ex-div today.
But this got me thinking, will I get the latest dividend from RSA for the extra shares I purchased yesterday?
Yes, the ex-div date is today, but I bought the shares through my Share Centre nominee account. Will details of my latest purchase be on the RSA share register in time?
Would appreciate your thoughts….
@ AI
If you purchased RSA yesterday and they went ex-div today, the dividend is yours.
Ignore my last comment. I didn’t read what you had written about Share Centre.
Have the RSA shares been credited to your share centre account?
@The Money Grower. The RSA shares showed in my Share Centre portfolio straight away, but I think the trade is settled on a T+3 basis.
RSA looks like a good punt, good luck to you all diving in there.
The 10y gilt has gone below 2.5%. Holy. Crap. I had drafted a Stock Tickle post about how we’re not heading for a Lost Decade, but now…
On Correlation of Markets and Diversification…
So much for not having all your eggs in one basket
Having a portfolio of index trackers allocated roughly by global market capitalisation should reduce risk through diversification
But the correlation coefficients between these markets would seem to be far higher than the text books suggest
far far higher
It is nice to see the gilts holding up like a lighthouse in a storm showing the way. Now there is an asset class completely uncorrelated with the stock markets – thank goodness…
So did your post move the market ?!
@Lemondy – Exactly. FTSE 100 forward yield nearly 4% in comparison!
@MoneyGrower – Thanks for fielding the AI’s question! 🙂 Anyone switching to miners/cyclicals has already had a bit of a relative bump. I like SSE as a company and for dividends, but worry about government raids in times of austerity…?
@Ben – I wrote a post about the correlation of asset classes back in 2009 that you might find interesting:
http://monevator.com/2009/10/13/think-youve-spread-your-risk-think-again/
There’s no doubt that the ‘risk on / risk off’ trading conditions of the past three years has seen more assets move in step. But diversification is more about the medium to long-term than the short-term, I’d argue.
@Andrew – Ha ha, well maybe for WEIR. I wonder if Harry’s plug for HGTS had an impact, too. 😉
@ Mr Monevator – What do you make of the discount/ premium situation with investment trusts at the moment?
Most constituents of any sector that has the word ‘income’ in it seem to be trading at a premium now. I can’t remember it being like this previously.
Does anyone know of a website where I can look at historic premiums/ discounts for different ITs?
TMG
@Money Grower — Yes, income trusts have been at a premium for at least a year. Very different to a few years ago (search this site for an article written when they were at near 10% discounts!)
I think it’s another sign of nervy investors to be honest