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Derek Stuart: my pick of battered stocks
The manager of Artemis UK Special Situations, a fund recommended by Citywire Selection, discusses the stocks on his radar.
Markets
'ITV is a big self help story, with its ability to add value through its online content a key factor. It also has a much stronger balance sheet than a year ago after it was able to refinance its debt, saving it around £18 million a year and it has also taken out a lot of costs,' he said.
BT's TV future
Stuart also continues to favour BT (BT.L) (3.6% of the fund) as he sees it taking an ever-greater slice of the cable TV and broadband market, while data firm Micro Focus (MCRO.L) is the second biggest position at 3.8% of the fund at the end of June.
He tips the firm to be able to continue to profit from the raft of insurers and banks looking to transfer data from old mainframe computers to modern operating systems. 'It has had several profit warnings but has got strong new management and 15% to 16% in free cashflow,' he said.
Stuart's fourth biggest position remains sausage casing manufacturer Devro (DVO.L) which he has followed since it first floated on the stock market in 1993. As one of two market leaders it has been able to grow its margins through a series of steady price increases.
Reducing Reed Elsevier and CRH
Stuart has reduced his holding in academic and business publisher Reed Elsevier (REL.L) from 3.5% to 2.5% of the fund, and has also halved his stake in Irish building materials supplier CRH (CRH.L) from 2% to 1% on fears over its exposure to slowing markets in Europe and the US. 'Reed has high returns on capital and still looks cheap on 10 times earnings, but we think the re-rating opportunity is now more limited,' he said.
Over the five years to 13 July, the fund has lost 0.7% compared with a positive return of 1.6% by the FTSE All Share.
Citywire Selection verdict:
Derek Stuart and Ruth Keattch invest in companies they believe are ripe for a turnaround. They think analyst forecasts for 2012 are over optimistic, but are backing companies they think are being missed by the market. Performance over the past few years has started to creep below the index, so we are monitoring the fund as we look for a return to form. Key stock picks include Reed Elsevier, BT and ITV, and the pair continue to shun banks.
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- Inmarsat PLC (ISA.L)
- Invensys PLC (ISYS.L)
- Lamprell PLC (LAM.L)
- Chemring Group PLC (CHG.L)
- Fenner PLC (FENR.L)
- BAE Systems PLC (BAES.L)
- Smith & Nephew PLC (SN.L)
- ITV PLC (ITV.L)
- BT Group PLC (BT.L)
- Micro Focus International PLC (MCRO.L)
- Devro PLC (DVO.L)
- Reed Elsevier PLC (REL.L)
- CRH PLC (CRH.L)
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