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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?

 
Diary of a Top Stocker: pouncing on battered Weir

The stock market may, or may not, be ‘correcting’, but one or two stocks certainly are.

I’ve just taken advantage of the recent fall in Weir (WEIR.L) to buy £1,000 of shares in the valve and pump manufacturer, which is in our Citywire Top Stocks® list.

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.

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8 comments so far. Why not have your say?

Redundant (Old Timer?)

Mar 27, 2012 at 13:25

I always ignore newly appointed Director's first dealings in FSTE companies - it is often a requirement that they take a vested interest in the company by buying £X value of shares.

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MOGO

Mar 27, 2012 at 20:01

Me too. I bought Weir on the fall, I think the fall is overdone, Weir pays a reasonable dividend and has a successful business, its products have good records of reliability, when I was a marine engineer 45 years ago, every ships engine room was stuffed full of Weir pumps of all shapes and sizes and they never gave me a moments concern.

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J Bewey

Mar 28, 2012 at 09:57

I agree Weir is still a quality stock; the price fall more to do with manipulation of supposed bad news so the market makers can make a killing. However with regard to Mogo's comment on the quality of the product he worked with; I used to work with Marconi datacoms equipment, which was really impressive and reliable, but with bad management the result is history. I caught a cold with their shares after following the Finance Directors £250,000 purchase of shares while they were falling. So you pays your money you takes your chance!

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john_r

Mar 28, 2012 at 19:48

Hmmh,

I wonder why 2 directors sold nearly £3m of Weir shares between them yesterday at £1.769 per share.

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J Bewey

Mar 29, 2012 at 11:43

As usual what do the insiders and market makers know that we do not. Sharedealing by directors should only be allowed 24 hours after they have stated their intentions to shareholders only!

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david haining

Mar 30, 2012 at 11:27

Weir is neither a falling knife nor a falling star but a first class company which, for some reason or another, the markets appear not to understand.

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J Bewey

Mar 30, 2012 at 11:52

Agreed. To john r I found out the director's selling was through excersising their share options @ £17.96 a share and then selling some to meet their tax liabilities. So all is well hopefully. Should be a good time to buy from what I see but DYOR.

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Medved

Apr 01, 2012 at 16:13

I think Wier is one of the most manipulated stocks. Almost all the ups and downs are artificial. IMHO

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