QUALIPORT
Shares Dropped From The Watch List

By Maynard Paton (TMFMayn)
March 1, 2004

By monitoring just a handful of shares on a watch list, you get to improve your share picking in two ways. First, you find yourself knowing more about the companies within your remit, thus building up a circle of competence and so on. Second, stock market noise and distractions will be reduced, both of which tend to be costly.

The Qualiport continues to benefit from keeping a watch list. When the portfolio's list was first introduced in June 2001, the FTSE 100 stood at 5,948 and the portfolio was valued at £21,037. On Friday (February 27th), the blue chip index had subsequently tumbled by 18% (with dividends reinvested), while the Qualiport had gained 14% (to £23,981).

To recap, the Qualiport's watch list is updated and published every three months and highlights the group of companies this portfolio has its eye on. 'Buy prices' are also shown, which are considered to represent attractive valuations for each share. Generally speaking, the entry prices are based on each company's historic free cash flow being capitalised at 7.5%.

However, certain valuations are based on other methods. Details of each valuation can be found by clicking on the relevant company's name within the table below. Of course, as time passes by, things change and the buy prices will inevitably alter.

And note this: the watch list should not be seen simply as a collection of tips. The Qualiport is run for Education, not Recommendation. Remember also that this Foolish portfolio is NOT a real money portfolio and big mistakes have been made in the past.

So, in order of market value, here's the list:

Company	Market value                  (£m)	Share price         (27/02/04)                   (p)	Buy price                  (p)
GlaxoSmithKline (LSE: GSK)	66,638	1,121	1,024
Imperial Tobacco (LSE: IMT)	8,451	1,159	1,086
Gallaher (LSE: GLH)	4,315	660	552
Emap (LSE: EMA)	2,335	910	657
Associated British Ports (LSE: ABP)	1,556	476	413
Johnston Press (LSE: JPR)	1,466	517	377
London Stock Exchange (LSE: LSE)	1,045	352	339
Carpetright (LSE: CPR)	699	995	719
Halma (LSE: HLMA)	494	135	120
Capital Radio (LSE: CAP)	438	528	400
DFS Furniture (LSE: DFS)	428	399	425
Renishaw (LSE: RSW)	375	515	338
Rotork (LSE: ROR)	326	392	290
Games Workshop (LSE: GAW)	218	719	479
Ulster Television (LSE: UTV)	215	409	241

There have been three changes to the list's membership since December's update. In has come GlaxoSmithKline and out have gone Scottish Radio and Metal Bulletin. The attractions to Glaxo were covered fully earlier on in the year. But what of Scottish Radio and Metal Bulletin?

Frankly, these two companies were too small and too tedious to maintain Qualiport coverage. Over time, I've gradually felt less inclined to write about them while you Fools, it seems, have not been too keen to read about them either. The Glaxo articles, for instance, attracted around five times as many readers as past reviews of the two media firms.

Though Scottish Radio has an involvement in radio and local newspapers -- two attractive industries -- its management's acquisition strategy has not covered itself in glory during recent years. Furthermore, Metal Bulletin's stable of financial journals does not make it the most obvious of 'franchises' to the layman.

Finally, a case could have been made for keeping the companies on the list if they were cheap. However, even during the deepest bear market for a generation, neither share came that close to representing good value. At present, the two shares would have to fall about 50% to attract the Qualiport.

Possibilities

So which shares could be possible replacements?

BT (LSE: BT.A) is one. The telecom group was mentioned as one of five quality blue chips in December and at 177p, the value attractions include a price to earnings ratio of 10 and a dividend yield of 4.8%. However, recent results continue to show sales declining as competition hurts the group's voice-based activities. But cost cutting and lower interest payments support the prospect of greater profits in the short term. Overall, it's difficult to see BT being displaced as the country's dominant fixed-line phone company, which gives it a good buy and hold feel. (Some of the UK's superfunds have gone large on BT shares, too.)

The other possible is ITV (LSE: ITV). Commercial television has traditionally rewarded buy and hold investors and ITV's leading market position gives it some decent competitive strengths. That said, the company was only formed a month ago and interpreting the past results of Granada and Carlton Communications is not a task to be taken lightly (although ITV's maiden results are out this Wednesday). The portfolio already keeps an eye on Ulster Television (the ITV license holder for Northern Ireland), though this company is busy expanding into commercial radio in the Republic of Ireland. Time spent following ITV could prove more worthwhile.

The author owns shares in Carpetright, DFS Furniture, Games Workshop, GlaxoSmithKline, Halma, Johnston Press and London Stock Exchange.