We add two new candidates for our next purchase to our watchlist.
This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.
What we're doing here at the Motley Fool's Beginners' Portfolio is, well, building a portfolio the way a beginner might go about it. It's not real money, but we're treating it as if it is.
We're making 10 investments of £500 each, taking account of all costs, watching for news of our shares, and keeping a track of the portfolio's valuation in terms of what we'd actually get if we sold it. In fact, we had a look at its valuation a couple of weeks ago.
Watchlist
We're also keeping a watchlist of potential candidates, both to keep a track on candidates for the final two slots (and for potential future purchases should we sell anything), and as a learning aid -- I reckon keeping a watchlist is something all beginners should do.
And since we last took a look at our watchlist, I've come across another two companies I want to add to it. And, of course, we have to remove BAE Systems (LSE: BA) from it because we have bought some.
The two are Morgan Sindall (LSE: MGNS) and Weir Group (LSE: WEIR). Before I say why, let's see the new watchlist...
| Company | Market cap | Price | Forward P/E | Forward dividend |
|---|
| WS Atkins (LSE: ATK) | £722m | 718p | 9.2 | 4.4% |
| Ricardo (LSE: RCDO) | £188m | 357p | 11.9 | 3.6% |
| TUI Travel (LSE: TT) | £2.9bn | 257p | 10.8 | 4.5% |
| Unilever (LSE: ULVR) (NYSE: UL.US) | £29.9bn | 2,336p | 18 | 3.3% |
| United Utilities (LSE: UU) | £4.5bn | 663p | 16.4 | 5.1% |
| Morgan Sindall | £285m | 591p | 7.8 | 6.4% |
| Weir Group | £3.9bn | 1,777p | 12 | 2.1% |
Downtrodden construction
Morgan Sindall is a company I've admired for a while. It's a construction and regeneration specialist focusing on redevelopment, brownsite construction, urban regeneration and so on. And its business has been going through a tough patch during the economic downturn.
In fact, we had more bad news about the company this week after it issued a profit warning, telling us that this year's trading is going to come in slightly below current expectations. And chief executive Paul Smith has resigned.
So, the forward figures in the table above will be downgraded a little, but there's plenty of room for that and for the dividend to be cut while leaving the shares still looking cheap. There's a small fall in earnings forecast for 2014, too, but at the interim stage on 30 June the company had net debt of only £12m, which is nothing really. The next year will be crucial, but is now a good time for the brave to get in?
Mining supplier
Weir Group is the other one, and I was alerted to it on Monday when I read the firm's interim update. The company, which provides pumps, hoses, valves and other equipment to the mining industry, reported slowing growth, and that was enough to cause the price to drop.
But overall, things looked pretty upbeat, with full-year pre-tax profits of between £440m and £450m expected, which is in line with broker forecasts. There's not much of a dividend expected, but Weir is one of those "picks and shovels" companies that should see even better days when mining demand improves, so it's definitely one for the watchlist.
I've run out of space to say much about the rest of the watchlist other than to note some price movements. WS Atkins, which I really liked last time, is up 16p to 718p, and TUI Travel has risen 26p to 257p. Unilever is up a bit as well, putting on 63p to 2,336p, but that price-to-earnings ratio of over 16 still looks a bit demanding to me.
Where next?
We now have a dedicated discussion board for the Beginners' Portfolio, which you can find here. I'm starting threads for each company in our portfolio, to which I'll add links to news stories as and when they are released -- if you add it to your favourites, you'll get the updates as they come.
Hopefully, it will also prove to be a useful forum for general discussions, which are hard to carry from article to article. In fact, there's a new thread just started yesterday asking some great questions about watchlists -- why not head on over and offer your thoughts before I do?
We also have some other resources that I would recommend to any beginner following this portfolio. I know it's part of my job to promote our free Motley Fool reports, but I genuinely think that we have two in particular that are especially good for beginners...
The "What Every New Investor Needs To Know" report is key -- it's concise and pretty easy going, so do click here for a copy.
And you should get a copy of "10 Steps To Making A Million In The Market". It's motivational, and shows that it really is plausible to make a significant pile of cash by investing in shares for the long term. It's available here.
Shares paying dividends are core to this portfolio, and Neil Woodford is an acknowledged expert on the strategy. I heartily recommend the free Motley Fool report "8 Shares Held By Britain's Super Investor" for followers of our Beginners' Portfolio. Click here to get your free copy, while it's still available.
More for beginners:
> Alan does not own any shares mentioned in this article.
