One young Foolish investor is looking to invest in today's buoyant market.
My Foolish colleague David Holding wrote yesterday: "All were bears not long ago. Now it seems everyone's a bull. What's an investor to do?"
It's a question that's been vexing my teenage son, Sim, in the past couple of weeks, as he weighs up the next investment for his Family Firms Portfolio.
In a moment, I'll tell you about the companies that top his shortlist, including a particularly interesting small firm that will be announcing its annual results this coming Friday. But first, a quick update on developments since our last look at the portfolio in October.
All were bears
Having invested in one company each month through the year to July 2011, Sim overcame his fears as a bear market virgin when the markets dived in August to up his investments to two a month.
A period of intense activity culminated with four investments in November when Sim averaged down on his existing holdings in soft drinks maker Nichols (LSE: NICL) and household goods giant Reckitt Benckiser (LSE: RB) (twice), and bought a new holding in investment trust Manchester & London (LSE: MNL).
Since the buying spree, Sim's been a bit short of cash and so far in 2012 hasn't made an investment. However, with the proceeds from the takeover of Robert Wiseman Dairies now sitting in our Motley Fool ShareBuilder account, he's been reacquainting himself with his portfolio and watchlist with a view to putting his Wiseman 'winnings' to work.
Now everyone's a bull
The unit value of the Family Firms Portfolio is currently showing a 70% gain versus a 36% return from HSBC's FTSE All-Share Index tracker, compared with figures of 49% and 19%, respectively, when Sim last looked at the values in October.
You won't be surprised to learn that he found the valuations the market was placing on the companies in his portfolio and watchlist to be generally a good bit richer now than in the late summer and autumn of last year.
In fact, Sim found the current situation to be similar to the months leading up to last year's August market crash when we had found it increasingly difficult to unearth compelling investment opportunities using sales, earnings and dividend valuation methods.
What's an investor to do?
Like a year ago, we've found ourselves focusing largely on companies with reasonably priced, high-quality assets.
Pub groups Fuller, Smith & Turner (LSE: FSTA) and Young & Co (LSE: YNGA) have classy London properties on their books at long-outdated valuations, while their recent subdued share prices seem to reflect the market's temporary ennui over the looming Budget and another beer tax rise.
In fact, we were set to invest in Fullers, which is an existing holding, on last week's scheduled ShareBuilder investment date, but the price moved above our 700p target the night before. And we won't be investing in Fullers this week either, because I'm subject to disclosure and trading rules relating to the shares I write about.
The same goes for another company we've been looking at: Robinson (LSE: RBN). This AIM-listed packaging firm, which we first invested in last May, will be announcing its annual results this coming Friday.
Still value?
According to Sim's calculations today, Robinson's assets compare with last year as follows:
| | Share price | Market cap | Net asset value | Discount to nav |
|---|
| Today | 89p | £14.2m | £22.6m | 37% |
| Last year | 72p | £11.5m | £21.1m | 45% |
On one hand, the assets are flattered by a £7.7m pension surplus, but on the other, £1.8m of the surplus is held in an escrow account and may be returned to shareholders at some point in the future. More significantly, Robinson has a substantial portfolio of surplus property that is valued in the books with no regard to its development potential.
The discount to net asset value is not as wide as last year, but still appears attractive, while the business itself is arguably stronger today than previously. Robinson produced 7.8p earnings per share from continuing operations for the 2010 full year. In the first half of 2011, the company has done 4.2p and hiked the interim dividend 17% for good measure.
In a trading update in January, the company said it anticipates the final results for 2011 will show improved profitability from continuing operations. It also said it expects the addition of recently won contracts to support continued growth in 2012.
In Robinson and the pub groups, I think Sim's found two or three perfectly investible companies. He just has to answer the question "Which share should I buy now?" -- focusing on the company fundamentals and closing his ears to those pundits who are saying "the market has got a bit ahead of itself" or "the Footsie chart is looking a bit toppy".
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More from G A Chester:
> G A Chester & Son own shares in Fuller, Smith & Turner, Manchester & London, Nichols, Reckitt Benckiser and Robinson. The Motley Fool owns shares in Reckitt Benckiser.
