All investors should keep a watchlist of interesting shares.
Do you keep a watchlist of shares that you might be interested in, but haven't quite decided to buy, for one reason or another? I do, and I think it's something that every private investor would benefit from. In my case, my list mostly contains shares that I think are good but a little expensive at the moment, so I'm hoping for a price fall. Or else it contains shares that I'm just not sure enough of to buy. Or maybe shares that act as overall market indicators. And sometimes, I watch companies that I'm unlikely to ever buy, but whose story fascinates me.
Sadly, I find it easy to keep watching great shares go up and up without ever buying them. Two examples in my case are Pace (LSE: PIC) and Autonomy (LSE: AU) -- both great companies with impressive share price records, but which, for reasons that I really can't remember, I've never bought.
Are cars electric?
I'm always drawn to bluesky companies (even if I rarely buy them), and I've had Tanfield (LSE: TAN) on my watchlist for some time now. Tanfield makes electric vehicles (in addition to having a back-up business making powered access platforms). The company is past the development phase and is actually making and shipping vehicles, so it's good bit more advanced than pure bluesky operations.
When I looked at Tanfield in April, I noted that its share price had recently doubled to 14p, and that was some way up from its low point of just 3.3p at the tail end of last year. Since then, the share price has remained fairly flat. (The company has recently had a one-for-five share consolidation, so don't be fooled into thinking it's just gone through the roof).
As an aside, I was reminded yesterday why I rarely buy bluesky shares, when I watched Stephen Voller's attempt to get funding on Dragon's Den for his latest venture, Bee Automobiles Ltd, and by the subsequent board discussion here. Voller was the CEO of Voller Energy, whose share price collapsed spectacularly after flotation, wiping out millions in investors' capital.
Tanfield certainly isn't in that league, but as David Holding pointed out in June, the company's credibility has been shaken badly in the past by announcements that all was well, when the truth turned out to be very different. And with no analysts' forecasts available, Tanfield really would be a "finger in the air" investment. But I just can't stop watching it.
We all need cash
Another company that was been on my watchlist for some time is that perennial printer of banknotes and other secure documents, De La Rue (LSE: DLAR).
Back in July, I noted that the company showed classic growth characteristics. It's had several years of steadily growing earnings and dividends, and has further growth forecast for the next two years. Granted, growth is forecast to slow in 2011, to just a 5% increase in earnings per share, but for the year ending March 2010, eps growth of 27% is expected. That puts De La Rue on a prospective PEG (the ratio championed by Jim Slater) of under 0.5 for 2010, but for 2011 it balloons to over 2.
Since then, Stephen Bland has fingered De La Rue as a value candidate, pointing to its good and rising dividend yield, and what he sees as its limited downside. It's pretty rare to see a share with growth characteristics, but also with a modest forward P/E of 12 and a dividend yield of over 5%. The only risk I see is its high gearing, but interest payments were covered 3.5 times last year, so that's probably no great worry.
Why haven't I bought any? I think it's a De La Rue is a good strong company for a long-term investment, but I just think there are better bargains out there right now -- I'll keep watching, though.
Large caps
I'm also watching a number of large cap shares, because I see them as good indicators of overall market value and sentiment towards shares in general.
The biggies I'm watching include BP (LSE: BP), the third largest company in the FTSE, with a market cap of nearly £100bn. BP is on a prospective P/E of less than 11 and a prospective dividend yield (which is almost certainly not going to be cut) of 6.7%. That, to me, is madly undervalued for such a major company. (I don't own any BP shares, but that's really only because I'm not wealthy enough to buy some of everything that's cheap these days.)
Similarly, I keep a careful eye on Vodafone (LSE: VOD), and not merely because I do actually own some. At £70bn, it's the world's biggest mobile phone company. Yet it is offering a dividend yield of 6% and a P/E of just over 9. It's in a different, but also very important, sector, and I think it's another good indicator of sentiment.
Similarly, I like to keep an eye on Unilever (LSE: ULVR) -- dividend yield of 4% and P/E of 14, and GlaxoSmithKline (LSE: GSK) -- dividend yield of 5.3% and P/E of 10.
Taken together, these companies represent some economically critical sectors, and while they're looking this cheap, I'm not at all worried about claims that the whole stock market is overvalued.
We may still have some short-term dips ahead of us, but while my watchlist is telling me things are cheap for the long-term investor, I really don't care.
More from Alan Oscroft:
> Alan owns shares in Vodafone.
