QUALIPORT
Quality Shares For 2005

By Maynard Paton (TMFMayn)
January 4, 2005

Forget all about New Year tips for 2005. A more reliable way to make money from shares is to start your own watch list -- for this year and beyond!

The Qualiport first introduced its own watch list in June 2001. At the time, the portfolio was valued at £21,037. By Friday (31 December 2004), the FTSE All-Share index had subsequently lost 6% (with dividends reinvested), while the Qualiport had gained 42% (to £29,888).

The Qualiport's watch list is updated and published at the start of every calendar quarter. It highlights the group of companies the portfolio has its eye on, as well as 'buy prices' considered to represent attractive valuations for each share. The latest review of each company and its valuation can be found by clicking on the links within the list. Of course, as time passes, things change and the buy prices will inevitably alter.

Importantly, the Qualiport is run for Education, Not Recommendation. Note 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 current list:

Results and updates

Seven companies have published results since the October watch list update. The statements from Emap, Halma and London Stock Exchange were reviewed here, here and here. The numbers from the other four are summarised below:

Nothing in the four sets of results changed the companies' long-term investment stories.

Results from Vodafone certainly underlined the telecom group's cash generative nature. The interim dividend was doubled (and the full-year payout is set to double, too) and the share buyback programme was extended by £1b to £4b.

Glaxo's figures were again hampered by adverse currency movements and the impact of generic competition, while Imperial continued to carve out decent margin and market share improvements. And despite reporting some positive progress, Capital Radio's statement warned of a deterioration in recent trading, though the firm did receive regulatory approval last month for its merger with GWR (LSE: GWG).

Last month also produced a handful of watch list trading statements. Pick of the bunch was that from Johnston Press, which confirmed profits for 2004 would be ahead of market forecasts. Updates also emerged from Gallaher, Associated British Ports and Rotork, all of which declared performances in line with expectations.

Thoughts for 2005

So what for the Qualiport in 2005?

1. No repeat of 2004: One certainty for 2005 is that last year's 33% Qualiport gain will not be repeated. Indeed, depending on developments at the London Stock Exchange, there is the distinct possibility of the portfolio declining in value this year. If the LSE's ongoing bid talks with Deutsche Boerse and Euronext eventually come to nothing, its shares will take a tumble and the portfolio (starting the year with 39% invested in the LSE) will struggle.  

2. Possible cash hoard: Wishful thinking perhaps, but if the LSE does succumb to a bid, the portfolio may well be sitting on a large cash hoard for most of the year. Not the greatest problem in the world, but one which may cause the portfolio to underperform if the market rallies strongly.

And how the Qualiport will reinvest any LSE bid proceeds is likely to be very interesting, because…

3. Quality doesn't come cheap: Quality companies rarely sell at attractive valuations and 2005 is very likely to throw up few -- if any -- watch list investment opportunities. In fact, of the fourteen or so shares monitored during 2004, just two traded at levels that were attractive enough to warrant a purchase. At current prices, the most likely candidate for a purchase in 2005 is Vodafone. Further bad news at Glaxo and Capital Radio may present opportunities too.

So, overall Qualiport prediction for 2005? After outrunning the FTSE in 2001, 2002, 2003 and 2004, beating the market for a fifth consecutive year is going to be difficult!

Maynard owns shares in Associated British Ports, Games Workshop, GlaxoSmithKline, Halma, Johnston Press and London Stock Exchange.

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