Christmas Stocking Selections Turbo-Charge Your Portfolio Christmas Presents This Month
December is usually a good month for stocks. This is especially encouraging when one considers the excellent portfolio gains investors have already enjoyed this year.
In eight out of ten years December has rewarded investors with good gains so investors can feel quite confident. And a lot of money is still sitting on the sidelines. Portfolio managers are being pressurised to invest all the cash they can and some are trying to play catch – up to the market as many have underperformed their benchmarks. It is therefore likely that more and more money will start pouring into stocks and this will continue next year.
What is the best Christmas present investors can hope to get from their share portfolio? Well it’s always nice when it is announced that one of your investments is to be bought by another company. Buy-outs are usually priced at about twenty percent above the ruling price before the announcement is made. So that’s a nice present. The problem is that you have just lost an obviously attractive investment and where are you going to invest the proceeds. And don’t forget the taxman and your capital gains tax. He’s also getting a
Another nice gift is when one of your companies announce earnings that are way above market expectations – a nice vindication of your research.
Or perhaps a highly respected analyst puts out a strong buy recommendation on one of your investments. When this happens your investment may rocket by 10 percent or more and this may only be the beginning. Other analysts will now increase their forecasts and look more carefully at the company. After deeper investigation they may increase their forecasts even further and this will result in an even higher share price. The market may now rate the company as even more superior and on a higher earnings multiple.
Investors should refine their research efforts and be aware of what gave rise to the above average earnings or the earnings upgrade. Is this a once – off or a sign of better things to come? What we want here is sustainability or a permanent competitive advantage. This is very hard to come by. The internet, the free flow of information and intense competition from every direction means that a monopoly enjoyed today may be gone tomorrow. So, investors need to be ever vigilant.
A share I think investors should stick into their Christmas stockings is Coronation Fund Managers Ltd. Coronation is the top performing stock on the JSE over the past five years according to the Business Times Top 100 companies survey. It has shown a compound growth rate of 78 percent per year over the last five years.
Five years ago you could have bought this share for R5.61 and when the survey closed it was trading at R68.60. Karl Leinberger, Coronation’s chief investment officer disagrees with me. “My opinion is that it’s not a good investment. People are forgetting that this is a cyclical business and industry and that alpha (market outperformance) is lumpy. The market is probably putting a very high rating on cyclically high earnings. We actually think our share price is higher than the value we would attribute to the underlying company”.
I think it is a good investment. The share is now trading at over R80.00 and investors have just earned a dividend of over two Rand a share. So if you had bought at R68.60 at the beginning of November you would now have realised a compound annualised gain of around 240 percent.