The Thaw Sets In
The optimists are gaining the upper hand and
the FTSE
100 is again toying with the 5,800 points level. Little bad news is
now factored into share prices and caution is required at this stage.
I certainly don’t intend selling any shares right now. Rather, I am looking for further buying opportunities. However, I am ruling out huge swathes of the market as I consider further investments.
For example, the news that manufacturing made a reasonable start to the New Year, growing in January for the first time in four months, does not inspire me. My only investment, and a modest one at that, in this sector is Severfield Rowan (SFR) and it is one that I regret, although it is now breaking even after the shares rose strongly this week.
I invested because I had no manufacturer in my portfolio and wanted a better balance. I could have put the money to better use.
New orders and output for manufacturing rose sharply last month while employment showed a more modest increase. That is very welcome news and it raises hopes that the economy will show a tiny amount of growth in the current quarter.
It is mildly amusing that this pick-up has come since the pound recovered from lows against the dollar and the euro, giving the lie to suggestions that currency depreciation is somehow good for the economy. Even so, I cannot feel that manufacturing will rebound far after so many years of decline.
A similar investment situation exists in construction, where some of my underperforming choices are coming good at last. I think that the best opportunities have gone and I congratulate anyone who bought the likes of Barratt Developments (BDEV), Taylor Wimpey (TW.) and Speedy Hire (SDY) at the bottom.
I didn’t catch the bottom of the market by any means but my investments in these three were for long term recovery. I hope I am wrong but I feel that these shares have run their course for now. Look for better buying opportunities in future.
In contrast, I think that the fall in Royal Dutch Shell's (RDSB) share price this week is starting to open up a buying opportunity. This has been one of my best investments and I am delighted to see that the dividend is being increased 2% this quarter.
The markets were expecting better, hence the share price fall. Some investors may also be concerned that Shell reckons the crude price could fall to $70 a barrel this year, which I think is highly unlikely, even if the stand-off between the West and Iran is resolved.
I can't fault Shell chief executive Peter Voser's suggestion that a volatile oil price is a fact of life and the price has admittedly trended lower over the past few months but the long term trend is up, which generally suits the oil companies.
In Your Face
I shall not even contemplate investing
in the anti-social networking site Facebook when its much hyped
flotation becomes reality.
It is true that we should welcome the flotation of a highly successful company after several years in which decent floats have been hard to come by. Facebook sure knocks spots off Ocado (OCDO).
However, I baulk at the notion that the company’s founder will retain control by holding Class B shares that have 10 votes for every vote awarded to Class A shares sold to the public. For a company that is at the cutting edge of the 21st century it is outrageous that it should seek to go back to the bad old days when companies could take money from investors without granting them equal rights.
Having two classes of shares was particularly popular in the brewing industry in this country and suited family companies that needed cash but did not want to give up control. The phenomenon gradually disappeared.
This discredited device is, to the best of my knowledge, retained in this country only by Associated Newspapers, publisher of the Daily Mail. It should be consigned to the dustbin. All shareholders should be equal.
Blankety Blank
Good luck to the Lloyds Banking Group (LLOY)
investor group seeking to get Sir Victor Blank stripped of his
knighthood. If Sir Call-Me-Mister Frederick Goodwin can be demoted for
wrecking Royal Bank of Scotland (RBS),
why not do likewise for the man who wrecked Lloyds?
However, the scandal is not that beknighted men brought the honours system into disrepute. It is that people are ever given honours in the first place just for doing very well paid jobs. That is what makes the whole charade so disreputable.
Rodney Hobson is a Morningstar columnist and author of four books, including How to Build a Share Portfolio. Each week Rodney provides his views on the latest market developments; the views contained herein are not necessarily those of Morningstar and should not be construed as financial advice.
