Appraising shares today for the long term requires a certain detachment from the present. It’s easier to be detached, of course, if a company has the security of a large cash surplus and supplies something we still need despite the restrictions of the pandemic, like Anpario. Next, one of Britain’s best-run retailers, though, is pitted against an intractable problem: few of us are shopping for clothes.
Deciding on the long-term prospects of businesses is a daunting prospect when so much about the short term is uncertain. But a pandemic is just one of numerous ill-defined but serious threats we hope will not happen “on our watch”. Over the course of an investing lifetime, though, some of them inevitably do.
This piece was written before the coronavirus severely impacted markets and new restrictions came into force.
A stock market sell-off probably triggered by high valuations and the global spread of Covid-19 is bad news for flighty investors who already own shares, but good news, perhaps, for those who would like to. Almost across the board, shares have got cheaper, if you believe they will survive the short term and prosper in the long term.
This piece was written in early February, before the coronavirus severely impacted markets.
There has been something of a melt-up in the valuations of the 30 shares I score and rank using my Decision Engine spreadsheet. Because prices have gone up, the engine is producing fewer and fewer recommendations.
When investors think about the competitive advantages, assets or capabilities businesses have that will enable them to profit handsomely from their activities, they often think of things such as patents, unique products and services or popular brands. But while these can make companies special, so can people.
I have investigated three companies this month. As usual, this comes down to weighing up the quality of the businesses against their market values. None of these firms comes up short on quality, but in terms of value it is a different story.
For more than 10 years, growth in sales of disinfectant wipes, foams and sprays has confirmed the superiority of Tristel’s chlorine-dioxide chemistry for manually cleaning simple instruments in hospitals.
Over the long term, companies investing for future growth should earn higher returns than firms returning most of their profit to shareholders. Thinking 10 years ahead as usual, I prefer innovative Renishaw and Goodwin to conservative Colefax.
I recently ejected Colefax from the Share Sleuth portfolio (see previous page). Though the company believes it can grow, it has not grown convincingly for a long time. Revenue and profit remain stubbornly around their pre-financial crisis highs over 10 years ago.
As luck would have it, two of the Share Sleuth portfolio’s best performers, Games Workshop and Dart, have published their annual reports recently. To find out more about how they have helped the portfolio beat the market, see Share Sleuth. Here in Share Watch we will consider their merits as investments now.
Neither company disappointed shareholders.
As well as soul-searching about System1, I have investigated two companies for the first time and two members of the Share Sleuth portfolio this month. Let’s take the newcomers first...
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