With the daffodils, up pops a new share ISA allowance. From 6 April 2015, we can stuff shares in our ISA to the value of £15,240, and that’s a tax-free opportunity worth grabbing with both hands.
What should we buy?
In the spirit of Warren Buffett and other great and successful investors, I reckon a quality-led approach to investing can deliver better long-term total returns than a price-led strategy.
Lead by price and we might end up dealing in some ropey old firms that come with hidden dangers. So, it may be better to sift the market for quality companies with great economics and attractive prospects. Once we’ve identified such quality-leaders, we can watch them and wait for a sensible entry point — perhaps during a period of general market weakness or when some temporary issue knocks the firm’s share price.
With the aim of building a champion’s league watch list, lets see why ARM Holdings (LSE: ARM) and Unilever (LSE: ULVR) make the grade.
ARMing the world
Chip designer ARM Holdings remains firmly embedded in the culture and trends of modern life, as its microprocessor designs continue to inhabit many of our communication devices. Original equipment manufacturers churn out more than 2.5 billion new items loaded with ARM technology every quarter and, judging by double-digit growth shown in the firm’s recent fourth-quarter results, the pace shows no sign of slackening off. Indeed, in just one market, around 95% of all smartphones by all manufacturers contain ARM chip designs.
ARM aims to enable people and devices to connect in ways that have never been possible before. That message sounds benign, but becomes potent when we think of new and emerging applications such as the so-called Internet-of-Things opportunity, which visionaries see as a new world order where everything in our homes, businesses and vehicles talks to each other under direction from us through our mobile devices.
Is it pie in the sky? I don’t think so. ARM is already making acquisitions that support the Internet-of-Things vision and the chief executive says he expects 2015 to bring exciting opportunities and challenges as ARM invests in new products and technologies, and continues to establish itself in competitive new markets. Did you get that? New products and technologies in new markets — ARM continues to evolve and that’s why I’m excited about the latent growth potential it still carries. If hover boards become a popular mode of transport soon, I fully expect them to be enabled by ARM technology.
ARM is such a forward-looking firm that it doesn’t matter where technology growth materialises in the future because ARM will likely be right in the centre of developments. That’s why the firm earns its place on our quality-leader watch list.
Evergreen progress
Despite a challenging year for our industry with significant economic headwinds and weak markets, says Unilever’s chief executive in the annual report, the firm delivered another year of competitive underlying sales growth and margin expansion.
That’s the essence of what’s attractive in an investment in Unilever, I reckon. The consumer goods giant tends to grind forward whatever the economic weather. The cash flow raised from the company’s stable of mighty brands makes a steadfast and reliable engine to drive progress.
Look at the record. In early year 2000 the shares traded at about 800p, today they trade around at 2830p, and the firm has always paid a growing dividend, too. Long-term performance like that is the holy grail of passive, long-term, buy-and-hold investing — and it’s why Unilever makes the grade for inclusion on our prestigious watch list.
