10 Shares I Should Have Bought In The Crisis

Published in Investing on 12 September 2012

These shares have multibagged since the financial crisis. Yet investors buying them were never really in serious danger.

The global banking crisis sparked a savage bear market. Companies previously regarded as blue chip went bust. Huge banks were taken to the very brink. Share prices collapsed.

Since then, many shares have rallied significantly. In fact, it is not too difficult to find companies whose shares have risen tenfold. Typically in a market recovery, the companies that subsequently rise the most are those that come closest to going under.

However, in 2008 and 2009 some companies that were never in serious danger fell heavily. Even companies that were making profits and paying dividends throughout the toughest times were hit. Despite their success, the bear market pushed prices of many great companies to excruciating lows. As markets improved, some great companies have since seen their share prices multiply. These are the shares that I wish I had bought in the crisis.

CompanyCrisis lowPrice todayP/E (now, historic)Yield (now, historic, %)Market cap (£m)
Babcock International (LSE: BAB)348.591920.32.53,320
Compass Group (LSE: CPG)237.570619.32.713,190
Delcam (LSE: DLC)19586026.80.867
Experian (LSE: EXPN)274.75102024.9210,260
Fenner (LSE: FENR)33.7536214.62.2699
Legal & General (LSE: LGEN)2313310.94.87,940
Mulberry (LSE: MUL)59.5131530.60.4793
Next (LSE: NXT)837.5356314.32.55,920
SAB Miller (LSE: SAB)799.5269821.12.144,070
Wynnstay Group (LSE: WYN)161400.2512.9267

I've picked four of these companies out as particularly interesting.

1) Mulberry Group

Investors like Warren Buffett love companies with strong brands. Through its eponymous range of luxury handbags, Mulberry is arguably the strongest brand owned by any UK-listed company.

Mulberry shows the returns that can be made from shares when you pick a winner.

In June 2009, Mulberry reported earnings per share (eps) of 4.5p for the year to March. This was down from 6p the year before. The company also reported that for the first 10 weeks of 2010, sales had increased 26%. At the time, Mulberry shares were 70p. Investors were being offered shares in a company with a leading brand and fast-growing, high-margin sales at 15.6 times most recent earnings.

Despite the horrors of the financial crisis, Mulberry was still trading profitably and paying a dividend. At this point, the shares carried very little risk. At the time, Mulberry was a great opportunity to buy an outstanding company at an ordinary price.

2) Compass Group

Compass Group is a large-scale caterer and support services provider. Compass provides services for large employers and big events worldwide.

In September 2008, Compass issued a trading statement confirming a 5% increase in sales and significant margin improvements. This did not stop the shares falling however. By mid-November, shares in Compass Group were changing hands for less than 250p each.

At the end of November 2008, the company announced eps for the full year of 22.0p (+45%). Sales had increased 5.9% and the dividend was raised 11%. Compass had proven the durability of its business -- the shares never looked back.

Earnings per share has increased at Compass through the financial crisis and recession. The company is expected to deliver earnings growth of 16.5% for 2013, followed by another 9.2% in 2014. 2008 was a great opportunity to buy a resilient, world-class business that was being priced as if it was going into long-term decline.

3) Wynnstay Group

Wynnstay Group is an agricultural supplies and retail business. The company has an eight-year record of increasing dividends to shareholders, and is one of the most successful companies listed on AIM today.

Wynnstay's low came in late December 2008. At this time the shares were trading at 161p. This was just 8.2 times the company's most recently reported full-year profits.

Considering Wynnstay had announced a 42% increase in interim profits just five months earlier, the market was undervaluing the company massively. This was demonstrated in January 2009 when Wynnstay reported record results and eps of 29p.

The markets that the company serves are uncorrelated with discretionary areas of the economy. It is surprising that the shares fell so low. Although they have since more than doubled, there is room for further rises. Wynnstay shares today trade at just 11.8 times 2012 forecasts. For a company with such an excellent track record, that seems cheap.

4) Next

Next is one of the few high-street retailers that is thriving today.

However, go back just a few years and Next shares were suffering badly. In the second half of 2008, the shares fell as low as 838p.

The growth being enjoyed by online fashion retailers, most notably ASOS (LSE: ASC), left investors speculating whether Next had been left behind. These sentiments drove Next shares down to less than six times the previous year's earnings.

Since the bear market ended, Next has been proving itself to investors with increased earnings and dividends. A payout of 101p is expected for 2013 (Next has a Janary year-end) -- nearly double the dividend for 2008 and 2009. Earnings per share is expected to hit 274.3p, a 9.3% advance on 2012 and 73% higher than the 2009 result. Next Directory (which includes online) sales are now 40% higher than they were five years ago. It appears that Next has got online licked.

Although Next reported a slight dip in eps for 2009, the dividend was never cut throughout the worst of the crisis.

If you want to boost your investment returns by buying shares in high-quality, resilient companies, then take a look at what top fund manager Neil Woodford has been buying. The Motley Fool report "8 Shares Held By Britain's Super Investor" tells you what this master investor has in his portfolio. The report is free and will be delivered to your inbox immediately.

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Further investment opportunities:

> David does not own shares in any of the above companies.

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mackeson29 12 Sep 2012 , 1:08pm

L&G is one I nearly went for @ 25p & didn't. Gutted doesn't quite cover it.

jeff700 12 Sep 2012 , 2:01pm

Is the crises over then? Nobody told me!

vinchainsaw 12 Sep 2012 , 2:29pm

I'm confident another bite of the apple will come along.
Not quite at those levels, but ti will surely come.

apprenticeDRL 12 Sep 2012 , 8:06pm

Ah the gift of hindsight - if only

theRealGrinch 12 Sep 2012 , 8:18pm

revisionism and piety on an industrial scale here.

ANuvver 12 Sep 2012 , 9:22pm

Fzzzzt - whooooomphh!

[Exits smoking DeLorian, dressed oddly and tries to look nonchalant among bemused 21st Century witnesses]

Take me to your stockbroker! Hang on ... is this February 1985?

Er, no, September 2012.

Damnit. I've undershot again. Tell me, have you heard of Apple?

Who hasn't?

Ah, good.

[pours handful of dust into petrol tank and disappears in a clap of light and orchestral bombast]

ANuvver 12 Sep 2012 , 9:27pm

Message from 2145:

The Council of Temporally Enabled Meerkats have informed me that I must revisit your zone and make it clear that I am no longer legally entitled to the brand name Bagger to the Future.

jaizan 12 Sep 2012 , 11:06pm

From his monthly FT articles, I believe John Lee has been holding Delcam, Fenner and Wynnstay for some time.

Now his broader track record puts him well & truly in that group of investors who I try to learn from. That includes reading the chapter covering him in Free Capital.

bouleversee 06 Nov 2012 , 2:58pm

Sadly, John Lee has written his last column for the FT. He will be much missed.

bouleversee 06 Nov 2012 , 3:11pm

I have Fenner, Experian, Babcock and Compass out of that list; the latter has not done particularly well over the longish period I have held it. Others which have recovered well are James Fisher and British Polythene, which rarely get a mention. Tate & Lyle and GKN haven't done badly either. Unfortunately, there are plenty of others in my portfolio (e.g. Invensys) which are still in the doldrums. Even John Lee got it wrong with Cable & Wireless, where I had a second bite at the poisonous cherry, whose management should be taken out and shot. Hindsight is a wonderful thing.

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