The FTSE 100 lost another 6.4% in January. But if you’d bought these 5 cheap shares at the beginning of January, that frown would be wiped right off your face.
The economy stinks. The stock market stinks. The global economy stinks. Our prime minister has lost the plot – Gordon Brown thinks there were certain instances where 125% mortgages were prudent. In short, there’s not much good news about at the moment.
January is often a strong month for the stock market. Some say it’s because people come back to work after Christmas holiday break all energised, full of New Year’s resolutions, and full of hope that this year will be the one that sees their share portfolio soar to the moon.
Thanks For Nothing
Other more cynical people might say it’s all a load of baloney. Mark Twain may have hit the nail on the head when he said “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
January 2009 proved the January effect, as it’s often referred to, is in fact a load of hogwash. The only effect it had this year was to send already beleaguered share portfolios yet further into the red. The FTSE 100 index slumped another 6.4%. Thanks for nothing, January 2009!
Retailing Shares CAN Rise
Yet amongst the mess of the economy and the stock market, there were some shining lights. Some of those lights shone brighter than others – more on them below – and some January gainers were somewhat surprising. For example, amidst the doom and gloom on the High Street, Marks & Spencer (LSE: MKS) shares snuck 7.6% higher in January.
Fellow retailer Carphone Warehouse (LSE: CPW) fared even better, rising 13% in January. It just goes to prove that the share prices of individual companies can and do move independently to the state of the economy. It also proves a company can be cheap even as its sales and profits are falling.
The Shares You Should Have Bought
Those two retailers proved surprisingly resilient. But they haven’t got a patch on the performance on these 5 companies in January.
| Company | Share Price | January 2009 Gain | Forward P/E | Forward Div Yield |
|---|
| Fresnillo (LSE: FRES) | 355p | 54% | 26 | 2% |
| ROK (LSE: ROK) | 31p | 51% | 4 | 8% |
| Clarkson (LSE: CKN) | 450p | 30% | 5 | 10% |
| Wellstream (LSE: WSM) | 477p | 34% | 7.5 | 2.6% |
| DSG International (LSE: DSGI) | 22p | 21% | ?? | 0% |
Now obviously a one-month time period is a rather short space of time over which to measure investing success. Share price gains could be due much more to luck than to good management.
In this volatile market, there is not much rhyme or reason as to why share prices move so rapidly. It might depend on what side the City traders got out of bed, on what Barack Obama ate for dinner overnight, or what Lorraine Kelly says about the state of the economy.
Bur whatever the reason, in investors in those five companies won’t be complaining!
Why Such Juicy Gains?
So why did the companies listed above move so much in just a one month period?
Frensnillo is a FTSE 100 silver and gold miner. In times of uncertainty, both silver and especially gold are seen as safe investing havens. Was it a flight to safety that boosted Frensnillo’s share price by over 50% in January? Or were the shares just plain dirt-cheap?
Rok provides development, building and maintenance services. You don’t need me to tell you how much the property sector is suffering right now. But if you managed to snag shares in Rok at the beginning of this month, you’d at least have something to smile about. Rok is valued at just £55m, has minimal debt, yet had 2007 sales of £950m. Are the shares still cheap today? Maybe.
Clarkson operates in the shipping industry, again one that is under pressure courtesy of the global economic downturn. Its share price had a buoyant January courtesy of a trading statement that merely confirmed the business hadn’t deteriorated since their last update in November. In this market, no more bad news is good news! That dividend yield looks tempting at 10%!
Wellstream Holdings is engaged in the design and manufacture of pipeline products and systems for the oil and gas industry. Again, with the oil price on the nose, and oil companies cutting back on exploration, the sector is struggling. The Wellstream share price performance in January, however, is proof once again that share prices can and do rise in a falling market and falling sector.
DSGI International, the company behind the Currys, Dixons and PC World brands, proves every dog can have his day. Sales are slumping, the company is expected to trade around break-even, there is no dividend, and the company has £150m in debt. This is a huge company revenue-wise, with annual sales of well over £8 billion, yet the market is valuing the total company at just £390m. Some investors in January obviously thought the shares were just plain cheap, whatever the short-term outlook. They may still be cheap today.
Finding The Shares That Might Take Off In February
What does all this prove? Two things…
1) Share prices can take off, sometimes unexpectedly, at unexpected times, and by surprisingly large percentages.
2) Patience is required. All the companies mentioned above have seen their share prices absolutely hammered from their 2008 peak. But all need not be lost. Just because a company has lost 80% or 90% of its value, doesn’t mean it can’t rise from the ashes and enrich investors who were brave and skilful enough to buy when all about them were panic selling.
If you are looking for cheap shares that might be about to take off in February and beyond, look no further than The Motley Fool’s Champion Shares premium share picking service. Take out a free 30-day trial today and get instant access to all Maynard Paton’s current buy recommendations. Click here for more details.
I wish you happy investing.
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