Shares Offering Everything For Today's Bear Market

Published in Investing on 3 October 2011

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:

CompanyShare priceMarket cap
1. Royal Dutch Shell (LSE: RDSB)1,962p£123bn
2. Sainsbury (LSE: SBRY)275p£5.2bn
3. Intermediate Capital (LSE: ICP)215p£860m
4. F&C Commercial
Property Trust (LSE: FCPT)
5. Beazley (LSE: BEZ)116.5p£605m
6. St Ives (LSE: SIV)68.5p£77m
7. Fiberweb (LSE: FWEB)43p£75m
8. Invista Real Estate
Investment Management (LSE: INRE)
9. Hellenic Carriers (LSE: HCL)47p£21m
10. Molins (LSE: MLIN)84p£17m
11. Swallowfield (LSE: SWL)115p£13m
12. Slingsby H.C (LSE: SLNG)662.5p£67m
13. Fletcher King (LSE: FLK)28.5p£2.6m

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.

The rest

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.

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The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

spyknife 03 Oct 2011 , 10:52am

This thing with Greece is starting to annoy me !
My ISA is not happy with the situation either.

sageofyork 04 Oct 2011 , 12:50pm

I agree spyknife Greece has now become a political problem and we all know how hopeless politicians are at sorting out problems.

Fabius1 04 Oct 2011 , 1:25pm

...and politics it seems.

BarneyCowshed 04 Oct 2011 , 3:04pm

Shame on you!

I've been watching the news for years.Politicians have the answers for everything.

Especially finance - and they have the pension and expenses packages to prove it.

RobbesPierre 04 Oct 2011 , 4:06pm


Well said. It's all grace and favours! :)

globally 04 Oct 2011 , 10:44pm

Generally, there's a good reason why some shares appear cheap and particularly those with a small market capitalisation and poor management. Lack of marketability and available dealing size together with wide spreads also tend to rule them out of any institutional buy list so they languish in a sort of stock market nether region until some bright analyst or financial journalist happens upon them. So often they become flavour of the month as a result of that analyst's recommendation, or a weekend mention in some worthy newspaper or journal, only to subside once again in to the stock market nether region if unforeseen circumstances occur and best expectations are not realised, and profit takers endeavour to realise their dwindling gains in a thin market. And in any case, why you might ask would analysts be interested in such small fry. Yes it's because it's their job and if no new ideas are forthcoming, its off to the job centre for retraining! I may be exaggerating somewhat but how many do you know that consistently outperform or have a better overall investment record than you and I.. A few definitely do, and their ideas are worth following, but there are an awful lot that don't and I would suggest that they are the majority. Which reminds me of a dreadful old joke. " Whats the difference between an investment bank analyst and a used-car salesman?" "The analyst doesn't know when he's lying." I've always thought it too much of a generalisation and a bit harsh, but then it was some years ago, since when regulation has been toughened up and times have changed I think. What do other "Fools" feel. .

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