The FTSE 100 lost another 7.7% in February. But if you'd bought these 5 cheap shares at the beginning of the month, that frown would be wiped right off your face.
These are not fun times for stock market investors. February's 7.7% fall comes on the back of a 31% fall in 2008 and a 6.4% decline in January.
The economy stinks. The stock market stinks. The global economy stinks. In short, there’s not much good news about at the moment.
But if you'd bought these 5 cheap shares at the beginning of February, you'd be cheering from the rafters.
Property Shares CAN Rise
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 February gainers were somewhat surprising. For example, amidst the doom and gloom in real estate, Savills (LSE: SVS) shares jumped almost 20% higher in February.
Fellow play on the property market, leading website Rightmove (LSE: RMV) fared even better, soaring 33% in February. 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 if the outlook for its sector is poor.
The Shares You Should Have Bought
Those two property-related retailers proved surprisingly resilient. But there were some other equally impressive performers in February.
Company | Share Price | February 2009 Gain | Forward P/E | Forward Div Yield |
|---|
| Speedy Hire (LSE: SDY) | 119p | 45% | 3 | Nil |
| Hochschild Mining (LSE: HOC) | 220p | 48% | 16 | 1.4% |
| Spirent Communications (LSE: SPT) | 45p | 16% | 6 | 2.7% |
| JD Sports Fashion (LSE: JD. ) | 280p | 31% | 4 | 3.9% |
| Mitchells & Butlers (LSE: MAB) | 224p | 21% | 11 | Nil |
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?
Speedy Hire is the UK's largest provider of tools and equipment for hire. They warned on profits towards the end of January, at which time their share price slumped to just 39p. On top of that, their £255m net debt position didn't sit will with risk-averse investors. Since then, there has been some steady director buying, from prices as low as 67p, right up to 105p. The directors clearly have confidence in the health of the business, and that the debt situation is more than manageable.
Hochschild Mining is a UK-based mining company with a focus on silver and gold. The gold price has been on a tear in recent times, again breaching the US$1,000 an ounce level last month. Hochschild shares have been a major beneficiary. There are still plenty of gold bugs willing to predict the price of gold will hit US$2,000 an ounce as investors increasingly flock to its historic 'safe haven' qualities. I have my doubts, but in the meantime, gold miners are having their day in the sun.
Spirent Communications, a leading communications technology company, announced its annual results in the last week of February. Earnings per share were ahead of expectations, the outlook statement was fair, and their share price benefited. In this market, it,s the companies that don't disappoint who often see their shares rise the most. Spirent is debt free and has £60m of cash in the bank, which compares favourably with their current market capitalisation of £300m.
In a turn up for the books, in early February JD Sports Fashion reported a positive sales performance for the Christmas period, sustaining it into January. Not all retailers are basket cases, seemingly. At the same time, management "confidently expects" profit for the year ended January 2009 will marginally exceed current market expectations. Even after the shares have gained 31% in February, for a growing retailer with no debt, the shares look cheap.
Pub group Mitchells & Butlers showed there is some life in the beleaguered sector as their shares rose over 20% in February. It appears the share price rise might have had more to do with a broker upgrade and a rumoured stake-building than any great rush by drinkers back into their pubs. Debt and property-related concerns seem likely to continue to be a drag on the company’s share price.
Of the companies mentioned above, my hunch is Spirent and JD Sports Fashion might be the best of the bunch. But, I wouldn't necessarily expect any share price fireworks to follow in March.
Finding The Shares That Might Take Off In March
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 2007 and 2008 peaks. 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.
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I wish you happy investing.
More on the economy, investing and the markets:
> The Motley Fool’s Share Dealing Service also had a good February. Even better, it’s free, cheap and reliable. Buy and sell shares in real time for a flat rate of just £10. It’s hard to beat. Open an account for free today. There is no obligation to trade.
> A version of this article was also published at the beginning of February 2009.
> Bruce Jackson doesn't have an interest in any of the companies mentioned in this article.
