The FTSE 100 gained 2.5% in March, a rare up-month in this relentless bear market. But if you'd bought these five cheap shares at the beginning of the month, you'd have been smiling even more.
Finally, the market has risen. All hail the stock market.
But before you pop the champagne corks to celebrate March's 2.5% rise in the FTSE 100 index, it's worth remembering the index of the UK’s leading shares is still down 11.5% this calendar year. Coming on the back of a 31% fall in 2008, these are still difficult times for investors.
The stock market has periodically shown glimpses of life, and stands close to the elusive 4,000 mark. Will it surge decisively higher from here, perhaps testing 4,500, or will it slump back to 3,000, plunging us all into a depressive state? Answers in the comments box below, please…
Anyway, as ever, there were some bright shining lights. If you'd bought these five cheap shares at the beginning of March, you'd be cheering from the rafters.
The Shares You Should Have Bought
Company | Share Price | March 2009 Gain | Forward P/E | Forward Div Yield |
|---|
| Venture Production (LSE: VPC) | 799p | 57% | 9 | 2% |
| Topps Tiles (LSE: TPT) | 35p | 56% | 8 | Nil |
| Psion (LSE: PON) | 52p | 50% | 11 | 7% |
| Regus (LSE: RGU) | 73.5p | 50% | 8 | 2% |
| Immunodiagnostic Systems (LSE: IDS) | 189p | 33% | 7 | 1% |
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. But whatever the reason, 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?
Venture Production is an Aberdeen based UK independent oil and gas company doing its best to prove there is life (and oil) in the North Sea yet. Its shares rose 57% in March after Centrica (LSE: CNA) took at 22.3% stake in the company at a price of 725p per share. Venture shares now trade at 799p, with Venture believing the 725p paid by Centrica substantially undervalues its prospects and strategic position particularly with regard to its UK gas resources.
As if to prove the point, Venture announced a successful tie-in of a second production well in the Chestnut field, one of the oldest undeveloped oil fields in the North Sea. That followed news of the discovery of a "significant gas reservoir" in the Carna field, again in the North Sea.
With profits forecast to grow rapidly, plus the prospect of a higher bid from Centrica, this is a company to keep an eye on.
Topps Tiles is the UK's largest tile and wood flooring specialist. Not surprisingly, it's struggling, having announced in March that like-for-like sales for the first half of its financial year fell a rather sobering 18%.
But that didn't stop the shares jumping 56% in the month, as the market spotted signs of the business stabilising. The big question with a company like Topps Tiles is whether they could ever get back to the level of profitability they enjoyed in 2007. I doubt it will happen for quite some time. Still, that doesn't mean the shares can't rise, as we saw in March, but for me, the easy gains may already have been made. Pass.
A Blast From The Past
Psion is a blast from the dot-com bust past. These days the company operates in the mobile hand-held computing business. Released in early March, its annual results were somewhat in line with expectations, but the outlook was somewhat dire, saying "…we are operating against the backdrop of a long and deep economic downturn, where market visibility is extremely limited". At the time, Fool writer David Holding said they looked cheap at 32.5p -- and he was right.
Psion is targeting positive cash flow in the year ahead. The company is capitalised at £73m, yet has no debt and cash of £41m. The shares could be still very cheap, but personally I'd be worried about their competitive position, and have doubts over whether they can achieve their goal of cash flow positive in the current financial year. Pass again.
Cracking The Recession Code
Workplace solutions provider Regus saw its shares soar by 50% in March after it unveiled a 25% increase in full-year profit, a stronger net cash position, a dividend hike, and gave a relatively confident assessment of its prospects in the coming year.
I was particularly impressed with this highlight…“New recession-busting product revenues up 98% half on half”. If it's cracked the code to busting the recession, it would be nice if they could share it with the rest of us.
Regus is capitalised at just under £700 million. It has a net cash position of £210 million. In the year just finished, it generated cash from operations of close to £250 million, which is just 2 times its net enterprise value of £500 million. There's more to the company than this alone, including exchange rates and leases, but the shares do look very interesting, even after the big run up in March.
Immunodiagnostic Systems Holdings (try saying it 5 times quickly) the producer of diagnostic testing kits, said in a trading update revenues were up 43% and profits were in line with expectations. It also said "Prospects for the new financial year look good, as we build upon the launch of our new IDSiSYS automated analyzer."
Immunodiagnostic (I wish they'd shorten the company's name!) shares rose 33% in March. The company is currently generating good profit margins, and forecasts are for explosive growth in 2010. There is no shortage of hype surrounding this company, but it might be one of the few small biotech companies that looks capable of delivering on its potential. Still, not one to blow the pension fund on.
Of the companies mentioned above, my hunch is Venture Production and Regus might be the best of the bunch, with an outside bet on the biotech with the ridiculously long name.
Finding The Shares That Might Take Off In April
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. Many of 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.
If you are looking for cheap shares that might be about to take off in April 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.
More on the economy and the markets:
> The Motley Fool's Share Dealing Service also had a good March. Even better, it's free and cheap. 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 March 2009.
> Bruce Jackson doesn't have an interest in any of the companies mentioned in this article.
