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Diary of a Top Stocker: pouncing on battered Weir
I've sunk £1,000 into Weir (WEIR.L), a Citywire Top Stock, after a 20% slide in the valve maker's shares. Have I caught a falling knife?
The stock market may, or may not, be ‘correcting’, but one or two stocks certainly are.
Why I snapped up Weir
With £6,000 of Citywire’s money burning a hole in my pocket, I’d been looking for a Top Stock that had come off the boil. Yesterday Weir caught my eye, sitting at the bottom of the table with a one-month price fall of around 18%.
Helpfully, Berenberg, the German private bank, strengthened my resolve with a note saying recent concerns over the US gas market are overdone, and that Weir is now a ‘buy’ on ‘short-term weakness, long-term strength’.
Even better, this morning brought news of a director dealing in the stock. Alan Ferguson, the former chief financial officer of platinum miner Lonmin (LMI.L), who joined Weir’s board as a non-exec in December, has spent nearly £50,000 on his first 2,730 Weir shares. Perfect timing!
As a result I have bought 55 shares in Weir at just under £18 per share, which is £4.36 below their peak of £22.36 on 24 February.
I must say I felt I badly needed a chance to buy into the many quality growth companies in Top Stocks, having bought a bunch of defensives – GlaxoSmithkline (GSK.L), Vodafone (VOD.L), Shell (RDSb.L) and BP (BP.L) – over a month ago. Weir, a long-term core holding of the AXA Framlington UK Select Opportunities fund run by Nigel Thomas, fits the bill.
Let's hope I've not caught a falling knife. Weir has had a rough time since its full-year results at the end of February. Although the 2011 results showed an impressive 34% rise in profits at the top end of expectations, nervousness over the growth prospects in its oil and gas business prompted Citigroup to cut the stock to ‘sell’ from ‘neutral’.
Here's the Stock of the Week video I made about Weir last November.
(continued) A profits warning by US oil services group Baker Hughes earlier this month worsened matters. It said margins would fall this quarter as North American exploration companies switched their focus from gas to oil in response to the fall in gas prices caused by the shale energy boom. This will result in big costs for service companies as they have to shift rigs and staff to new locations.
Fortunately, Alexander Virgo of Berenberg says the ‘longer-term thesis at Weir’ remains intact, saying there were other issues behind Baker Hughes’ margin problems and that the read across to Weir is ‘more limited’ than first feared. Virgo reckons Weir shares are trading just under 10 times forecast earnings for 2013, and thinks the shares could be worth over £25 even with some caution built into his margin estimates.
More about this:
Look up the funds
Look up the shares
- Weir Group PLC (WEIR.L)
- Lonmin PLC (LMI.L)
- GlaxoSmithkline PLC (GSK.L)
- Vodafone Group PLC (VOD.L)
- Royal Dutch Shell PLC (RDSb.L)
- BP PLC (BP.L)
- Afren PLC (AFRE.L)
- Tullow Oil PLC (TLW.L)
- Galliford Try PLC (GFRD.L)
- Imagination Technologies Group PLC (IMG.L)
Look up the fund managers
More from us
- Pump it up for Weir Group
- What should I do with shares in Imagination Technologies?
- Diary of a Top Stocker: buying at the top of the market?
- Diary of a Top Stocker: 5 quality blue chips I've got my eye on
- Diary of a Top Stocker: Kenmare is a winner and I'm on the launch pad
- Citywire Top Stocks®
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