Midas share tips: The star of 2008 is... a money lender
Financial Mail's ace stock picker looks back on 2008 and finds the leading pick throughout the turmoil has been a lender...
Buying shares is a long-term business, as stockbrokers repeatedly tell their clients. The mantra has never seemed more apposite - over the past year indices have lost between 30 and 60% of their value.
Stock market investors who buy shares for capital growth and income have been thwarted on both fronts. Most companies are worth less than they were 12 months ago and many have either cut dividends or are expected to cut them in 2009.
Markets were already shaky last December. But no one foresaw the economic tsunami that has swept across Britain, devastating banks, businesses and personal savings. Midas has not been immune from the turmoil but certain recommendations from the past year stand out.
During the last festive season we recommended five stocks - oil and gas explorer Serica Energy, meat supplier Hilton Food Group, money lender Provident Financial, medical supplies business Smith & Nephew and gas and electricity group Scottish and Southern Energy.
Serica Energy has been the poorest performer, falling from 99p to 30p as the oil price collapsed from a summer high of nearly $150 a barrel to about $40 a barrel.
Nonetheless, the company remains confident about its fundamental prospects and investors who bought last year should stick with the group rather than book a massive loss.
Hilton Food Group, Smith & Nephew and Scottish and Southern Energy have declined in value, but while each company acknowledges the tough environment, they all have money in the bank and seem prepared to meet the challenges of the coming year, so hold for now.
Investors in Scottish & Southern Energy can also take comfort from the fact that the business is intent on paying a 66p dividend for the year to March 2009, a ten per cent increase on this year's payment.
The star performer from last December's recommendations is Provident Financial. The company lends money primarily to those who cannot borrow from anyone else.
Amounts tend to be small and the business relies on Provident's agents being able to assess whether customers will be able to repay loans or not.
This is made easier because agents meet customers face to face, often in their homes. A recent trading statement was upbeat and the shares have risen 11% to 920p. Demand for Provident's services is likely to grow as the recession bites, but there is a risk that customers will default. Be safe and sell half.
Looking back throughout the year, certain Midas recommendations overcame the prevailing gloom. Takeover action has been muted, but Biffa, Coda and Thus were all acquired, each at a premium of 14 to 15% of the price at which Midas recommended them.
Another Midas tip, Imperial Energy, is in the final stages of a rather fraught takeover saga. We recommended Imperial in July, when the shares were 774p. Two weeks later, the Russian-based oil explorer received a 1250p a share bid approach from Indian energy giant ONGC. The bid has rumbled on even as oil prices have slumped and now investors have been given until midday on Tuesday to accept the offer.
Investors who bought in the summer stand to make a 61% return if they accept ONGC's offer, but if acceptances are not received from investors holding 90% of the stock the bid will lapse.
This is a knife-edge situation. ONGC's offer was made when the oil price was around $140 a barrel and if it walks away on Tuesday, Imperial's price will tumble. Any investor who bought in the summer should accept ONGC's generous proposal post-haste.
City coverage and share tips
This is Money carries breaking City news throughout the day. Bookmark Companies & Markets and try these markets links...
Takeover approaches invariably send a company's share price higher, but some Midas recommendations have done well on their own merits or by being in a sector that is considered more resilient than most, such as healthcare.
Specialist pharmaceutical group Shire, for example, has risen seven per cent to 970p since we recommended it in August. Sales and profits are growing and the company is generating plenty of cash. Hold the shares.
Begbies Traynor is in another thriving business sector - insolvency. Midas recommended this stock in March, when the shares were 115p. By October, they had risen to 167p and we said investors should sell at least half their holding.
Begbies also works in areas such as tax and corporate finance. At the start of December the company admitted its corporate finance arm, which offers takeover advice, had seen a slump in activity. Today Begbies' share price is 134½p.
Investors who sold a chunk of their holdings in October did well, but they should hold on to the rest as the insolvency business should compensate for any weakness elsewhere in the group next year.
Some companies, encouragingly, are beginning to regain momentum.
Waste company Shanks was trading at 87p when Midas recommended it just three weeks ago. Now, in these volatile markets, it is an extraordinary 21% higher at 105½p.
The business has good prospects and the price should increase, but investors will not lose out by selling half their holdings now.
Most watched Money videos
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- Footage of the Peugeot fastback all-electric e-3008 range
- Mercedes has finally unveiled its new electric G-Class
- Land Rover unveil newest all-electric Range Rover SUV
- Mini Cooper SE: The British icon gets an all-electric makeover
- Introducing Britain's new sports car: The electric buggy Callum Skye
- Paul McCartney's psychedelic Wings 1972 double-decker tour bus
- Top Gear takes Jamiroquai's lead singer's Lamborghini for a spin
- Incredibly rare MG Metro 6R4 rally car sells for a record £425,500
- A look inside the new Ineos Quartermaster off-road pickup truck
- Kia's 372-mile compact electric SUV - and it could costs under £30k
- Leapmotor T03 is set to become Britain's cheapest EV from 2025
- Shop price inflation falls to lowest levels since...
- Shamed Woodford told to hand back his CBE after fund...
- Labour dithers over NatWest share sale plan saying it...
- Takeover talks stall at Anglo American after wrangling...
- AA adds fully electric recovery trucks to its fleet
- Hospitality group Revolution Bars rejects Nightcap...
- One of Britain's rarest coins EVER sells for $1m at...
- Can I move my non-refundable booking.com hotel...
- Victorian Plumbing sees profits jump in first half...
- SALLY SORTS IT: I ordered a blonde wig after my breast...
- I fear a Labour government would raid pensions...
- How £5,000 is the magic number to save at Nationwide if...
- Nick Train vows to back 'world-class' British businesses...
- What is the state pension triple lock plus plan - and how...
- Ocado to be relegated from Footsie after six years with...
- Do drivers called Muhammad pay more for car insurance...
- MARKET REPORT: Fever-Tree left nursing another hangover...
- BUSINESS LIVE: Revolution rejects Nightcap offer; Bunzl...