View the article online at http://citywire.co.uk/money/article/a576490
Smart Investor: 5 shares you need to hold
Over the past quarter only a handful of companies have earned a place on Smart Investor's 'buy' list. Here's his pick of five of the best.
Homebuilders, an insurer and an oil giant feature in Smart Investor's pick of five of the best shares for your long-term portfolio.
Fools rush in
As a die-hard supporter of cost-averaging, I feel I must offer a word of caution before providing a summary of this quarter’s Smart Investor 'buy' recommendations during ISA season.
Every April witnesses great hordes of private investors feeling a tremendous pressure to invest their 11 or so grand in something as soon as the money clears in their ISA. Moreover, with inflation still above the Bank of England’s 3% upper boundary and many ISA providers offering little or no interest, this pressure is further exacerbated.
As regular readers know, I follow a method of cost averaging where I buy slowly and sell slowly, which means I place no pressure on myself to find the bottom or the top of the market. I simply invest in quality companies at reasonable prices. Furthermore, many sharedealing providers offer aggregated orders to keep commission costs at a minimum.
My top picks
Over the past quarter I have recommended you purchase five companies for the long term. Here's a quick summary of my picks – for more details click on the names of the companies, which will take you to my original articles.
Persimmon (PSN.L) was recommended as a 'buy' on 13 January, with the company having had a mixed past five years. The company made a substantial loss in 2008, which meant that average return on equity over the past five years was lacklustre, and a yield of just 1.5% is insubstantial. However, the company’s low debt levels, attractive price-to-book ratio and considerable land bank make it one for your long-term portfolio.
On 6 February I tipped Aviva (AV.L) as a 'buy'. As with Persimmon, it has experienced mixed performance over the past five years, although its average return on equity figure remains acceptable in spite of a loss in 2008. Meanwhile, a mighty yield, coupled with an attractive price, mean that Aviva is a good long-term buy. Of course, debt levels are a tad high and Aviva is, to an extent, a ‘play’ on the stock market. However, as the article stated, Aviva is essentially £1 for less than £1.
Balfour Beatty (BALF.L) was tipped on 22 February. Unlike the previous two companies, Balfour Beatty has delivered a healthy profit in each of the past five years, delivering an impressive average return on equity during that period. In addition, low debt levels, a yield of 4.5% and reasonable free cash flow are all plus points, while the current price is acceptable. As mentioned in the original article, it is no ‘bargain basement stock’, but is reasonably priced and of sufficient quality to merit investment.
Another housebuilder featured in my article of 5 March. This time it was Bellway (BWY.L) in the limelight and, as with Persimmon, it has a very light debt load, substantial amounts of cash, encouraging free cash flow and a low price-to-book ratio. It too has had a challenging past five years, also making a loss in 2008 and having mid-single-digit return on equity over the period. Perhaps the drawback with Bellway is a high price-to-earnings ratio, although this is hardly surprising when the state of its trading environment is taken into consideration. As mentioned in the original article, cost average and be prepared to wait.
My final buy tip of the quarter was a review of a company I first recommended as a buy in February 2011: Royal Dutch Shell (RDSb.L). It ticks all three boxes in terms of viability, performance and value and, as pointed out in the original article, is actually more viable, performing better and offers better value than when I tipped it in February 2011 – in spite of its shares being around 8% higher. As highlighted at the outset of this article, there is no pressure to ‘pile in’ to any of these; moving slowly can sometimes be worthwhile – especially when you are a long-term investor like me.
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Andrew Friend, acting co-manager*, and Marcus Langlands Pearse, co-manager of the Henderson UK Property Unit Trust (HUKPUT), provide an overview of the key risks and opportunities for the UK commercial property market.
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Look up the shares
- Persimmon PLC (PSN.L)
- Aviva PLC (AV.L)
- Balfour Beatty PLC (BALF.L)
- Bellway PLC (BWY.L)
- Royal Dutch Shell PLC (RDSb.L)
More from us
- Smart Investor Tip: the new stock with a home in my portfolio
- Smart Investor: why Aviva offers value for money
- Smart Investor Tip: a construction giant that's ripe for investment
- Smart Investor Tip: a bricks-and-mortar winner
- Smart Investor: how my Shell tip has performed
- Smart Investor: cost average to survive eurozone chaos
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