Investors can afford to be extremely choosy at the moment...
After the market carnage over the last quarter, we should be spoiling ourselves a little in share selection.
In June, we may have been happy with value shares offering reasonably favourable PTBV, yields, and P/E ratios; at least to have a closer look at. Now, it's time to be far more demanding. We want tighter ratios on all three of the above, with a requirement for a little growth to boot.
It was from this basis that I decided to run a few mechanical screen filters to help take any personal preconceptions and emotion out of the initial selection.
First off, I want an above average yield. The longer in the investing tooth I get, the more I think yield is paramount. So it's set at 5% for the purposes of this experiment.
The prospective price-to-earnings ratio (P/E) maximum was set at 12, whilst the price-to-tangible book value (PTBV) was set at 1.2, as was the PEG ratio. This PEG setting wasn't designed to find fast growers, of course. As mainly a value investor, I don't like paying for growth. But in these bearish times, I'm searching for a little of everything; so at least some growth.
Here are the shortlisted candidates in order of descending market capitalisation:
As you'll note, the screen is no respecter of size. Tiddler Fletcher King could fit inside the big Shell more than 40,000 times.
Anything that finds itself on such a shortlist is probably there for a good reason. But the basics tend to suggest it may be able to move off the list courtesy of a rising share price.
The big two
At the bottom of this article, it says "David owns shares in Royal Dutch Shell, Sainsbury". I do so because of the fundamentals confirmed by this value screen (though Sainsbury's PEG will be higher in reality).
I know enough to know that I don't know more than the market. There is no possible way the vast majority of us can get any kind of edge on such shares. So it's best to follow some basic value principles and to ignore the macro-economic picture. All else is noise to me.
We'll know more about how things are progressing at Sainsbury with this Wednesday's trading statement.
Intermediate Capital will tend to act broadly as a barometer for the market. The FD recently bought £150,000 worth of shares for his wife at a price 6.6% north of today's.
I believe there are better bargains in commercial property than F&C.
Beazley has followed its bigger insurance peers Aviva (LSE: AV) and RSA Insurance (LSE: RSA) down the stock market's ski slope of late and looks to be in contrarian buying territory again.
Print group St Ives' share price is certainly pricing in a heck of a lot of pessimism. It isn't quite in the value territory it reached last year, though.
Nonwoven fabrics maker Fiberweb maybe a good rebound candidate but I won't be taking the plunge due to the relatively high gearing.
Invista Real Estate Investment Management returned 18p per share to shareholders in June. It continues to follow its strategy of an "orderly realisation of value from its assets". Its £64m remaining NAV and £35m in cash should still see a handsome reward from here for patient investors.
Hellenic Carriers is another share which will tend to reflect the world's level of economic optimism. The Jersey-domiciled Greek shipping company waived the interim dividend recently (and so, perhaps, shouldn't have made the shortlist), but the results weren't as bad as the share price suggests. The shares are now at an all-time low, even cheaper than when my colleague Steve Scott took a look at the company in July 2009. I'm not sure I'm feeling quite brave enough given the blue-chip bargains around, though may take a small punt.
Stephen Bland selected Molins in March since when the price has slipped a little when corrected for dividends paid. With NTAV of double the market capitalisation, cash of 31p per share, a prospective yield of 5.9% and an anticipated P/E of 5.8, the shares look to be a bargain.
Of the remaining three, tiny property services group Fletcher King looks the most interesting to me. The company sees a tough year ahead, though, and is far too small for comfort for many private investors.
More from David Holding:
> David owns shares in Royal Dutch Shell, Sainsbury & Invista Real Estate Investment Management.