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The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.
We’re approaching the end of the year and we’ve seen how the Beginners Portfolio is up 64% since inception. So it seems like a good time to reflect on which of our companies might do well in 2014.
I think we’ll have a good chance of some serious strengthening from BP (LSE: BP) (NYSE: BP.US) as the oil giant continues its post-disaster recovery.
BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) has been good to us so far, and I can only see that continuing as the world heads slowly but surely away from the recessionary years.
And thirdly, Persimmon (LSE: PSN) has been our second-biggest winner to date, but the recovery in the housing market is still in its early days and I reckon we should have plenty more to come.
How have these three fared so far? Here’s how they stood as of last week’s valuation, including dividends:
What about City forecasts? Here’s the current consensus for all three:
I’ve already offered my thoughts on BP’s prospects for 2014, so I’ll just summarise here.
The shares are on a very low prospective P/E valuation — at the end of 2009, before the Gulf of Mexico spill, they were valued at a higher P/E of 11, and that was in the depths of recession. In more positive economic times, I’d expect a better valuation than that — and a share price uprating is supported by earnings and dividend growth. The biggest threat is further escalation of disaster costs, but it’s looking less and less likely there’ll be any big surprises to come.
We’re emerging from a recessionary period when aerospace and defence spending was tight — governments were cutting back, and private customers were feeling the pinch too. BAE’s price-to-earnings valuation slumped to just over six in 2011, which I thought was ludicrously low. Even by October 2012 when I added BAE to the fledgling Beginners’ Portfolio it still seemed way too cheap, and we’ve since had a very nice total return of 29%.
But on a forward P/E of 10 and with a twice-covered prospective dividend yielding nearly 5%, I reckon it’s still too cheap — I could easily see us making a further 20% on BAE in 2014.
We’re up almost 90% since we added the shares, but I reckon there’s more to come. The forecast 2013 year-end P/E is a bit above average at 15. But that actually looks quite conservative to me for a company with good growth forecasts, and 2014 predictions drop the P/E to under 12.
We’ve seen house sales rising over the past 18 months, in both volumes and prices. But the housing market recovery is still in its early days — mortgages are becoming easier to get, but there’s still some way to go and we haven’t yet seen the full effect of the government’s ‘Help to Buy’ scheme.
I can see a good year ahead for all of these three — it will be interesting to look back 12 months from now!
Feel free to give us your beginners’ tips for 2014, or discuss anything else relating to this portfolio, over on the Beginners’ Portfolio discussion board.
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> Alan does not own any share mentioned in this article.