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MARKET COMMENT
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Many investors are in limbo at the moment. As we said in this article yesterday, the stock market doesn't look especially cheap and neither does it look especially expensive. Some spectacular gains have been made in smaller companies and in technology shares, with the techMARK index rising some 60% since March. But many investors think the best gains have been made already. So where now for the active investor? A couple of opportunities reported results today. Rexam (LSE: REX) and WH Smith (LSE: SMWH) can both lay claim to annual sales of around £3b. Rexam is the less well known of the two, and is involved in consumer packaging having sold off peripheral interests in the last few years. It is also the more profitable of the two, with profits for this year expected to come in at around £240m. This values the company at just under 11 times profits for its current financial year. Rexam's dividend yield is also quite healthy, at 4.2%. But those who are allergic to debt won't be keen to hear it has net borrowings of £1.4b, although a recent disposal will reduce this slightly. Nevertheless, the shares look like decent value at this level. WH Smith is one of those investing conundrums. It's shuffled along at a low valuation level for several years. It appears to be on the road to recovery, but then slips back time and time again. This morning, Smith's shares dived 10% after it warned that the hot weather and increased competition had dented sales and margins in its UK shops. This division accounts for just over half of its sales. At 339p its market value is a mere £850m. It has no debt. In fact it even had net cash of £30m at the end of February. Cash generation in recent years hasn't been overly impressive though. Profit forecasts for this year are being trimmed to just over £100m, down from £115m, following this morning's warning. That puts Smith's on a P/E of around 11 as well. Its dividend yield, assuming the full-year payout is held at 19p, is the more tantalising of the two at 5.8%. At first glance it looks like a good candidate for a private equity group. But bid rumours have been notable by their absence. A combination of these two businesses, attractive for their sheer dullness, offer a yield of 5% and should do well over the next few years.