MARKET COMMENT
Profiting From Good Quality Value Shares

By Maynard Paton (TMFMayn)
September 24, 2004

Want to know how to profit from good quality value shares?

Find companies with long histories of profit and dividend improvements, have the prospect of further growth, and offer a single digit price to earnings (P/E) ratio, an attractive dividend yield and/or a significant cash pile.

Or subscribe to the Motley Fool's Value Investor newsletter, which finds them for you.

The following table reveals three good quality value shares selected by the Value Investor newsletter. At the time of selection, each had a decent ten-year record of increasing earnings and dividends:

The trio were all trading on attractive ratings when they were profiled in the newsletter. What's more, all three have issued good results since.

After adjusting for a very healthy cash pile, lighting group FW Thorpe was trading at a P/E of just 7 when it was selected for April's Value Investor. The firm subsequently issued some great figures. Earnings in 2004 were up nearly 50%, which funded a further 30% lift to the dividend. At yesterday's 280p closing share price, Value Investor readers had gained 20%.

After adjusting for another healthy cash pile, June's Value Investor showed electrical engineer T Clarke sporting a forward P/E of about 9 and a dividend yield of almost 6%. Although a recent half-year statement owned up to a 45% slump in earnings, an upbeat outlook statement supported a 25% increase to the dividend. At yesterday's 560p closing share price, Value Investor readers had gained 14%.

Revisiting August's Value Investor, the main value features of moneylender S&U were a prospective P/E of below 9 and a dividend yield of over 6%. S&U has also put in a respectable performance of late. Its interim numbers delivered earnings growth of 17% and a 13% increase to the payout. At yesterday's 535p closing share price, Value Investor readers had gained 9%.

None of these shares will ever shoot the lights out. However, buying these proven operators with single digit P/Es, high yields and/or reassuring net cash positions has so far produced workmanlike gains in what has been a flat market. With further earnings and dividend growth expected at all three companies, the gains should be extended over time.

Maynard constantly trawls the market for good quality value shares to include in the Value Investor newsletter. The share price gains expressed above account for bid/offer spreads, with the buy price taken at the close of trade on the first day following the relevant edition's publication. To access past editions of the the Value Investor newsletter and to enjoy a FREE 30-day no-obligation trial , click here.