Beginners’ Portfolio: Out With Quindell PLC And Blinkx Plc, In With ARM Holdings plc

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The Beginners’ Portfolio is a virtual portfolio, run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and do not constitute advice to buy or sell.

It’s been an eventful month for the Beginners’ Portfolio after I turfed out two growth shares gone bad, Quindell (LSE: QPP) and Blinkx (LSE: BLNX), and welcomed ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) as a replacement.

Here’s how our valuation is looking, with prices taken on 16 December:

Initial investment £5,073.66
Company Shares Buy Cost Bid Value Change %
Tesco 159 305.5p £498.23 164.5p £251.56 -£246.68 -49.5%
Glaxo 34 1,440.5p £502.22 1,327p £441.18 -£61.04 -12.2%
Persimmon 49 617.9p £352.21 1,498p £724.02 £398.81 +122%
BP 112 434.5p £499.01 371.0p £405.52 -£493.49 -18.7%
Rio Tinto 31 3,132.9p £996.05 2,667p £816.77 -£179.28 -18.0%
BAE 146 332.3p £497.59 444.7p £639.26 £141.67 +28.5%
Apple 14 $65.50 £605.98 $108 £951.73 £345.75 +57.1%
Aviva 146 321.4p £470.71 462.3p £664.96 £194.25 +41.3%
Barclays 210 254.2p £546.56 222.5p £457.25 -£89.31 -16.3%
ARM 80 913.5p £744.46 917.0p £723.60 -£20.86 -2.8%
Cash         £22.56    
Current value         £6,098.41 £1,024.75 +20.2%

My ill-judged venture into Quindell lost £165.62 (33%), but I was lucky to get out when I did. Since selling at 139p, Quindell has slumped to 34.5p, briefly hitting a low of 24.1p along the way. Had I held on, I’d now be telling you of an 85% loss instead!

Blinkx lost even more, with a 40% drop of £199.72. The price has remained pretty stable since then, but as my original reasons for buying had evaporated I’m convinced it was still the right decision to dump.

A new hope

Those two have been replaced by my new growth hope, ARM Holdings, whose shares are actually up more than 400% over the past five years. But the price has been pretty much flat since the start of 2013 and has actually fallen 8% in the past 12 months, while earnings have carried on rising.

That’s helped bring ARM’s P/E valuation down to something looking a bit less outrageous — from a trailing P/E of over 52 at the end of 2013, forecasts suggest a multiple for 2015 of under 32, which is the lowest its been since 2008.

The story at ARM is pretty much unchanged, as the world is demanding increasing billions of ARM-designed chips every year.

I remember saying years ago that the world of mobile computing was in its infancy, and it still is. Processor chips are becoming increasingly ubiquitous, and the demand is only going to go one way — and I can’t see it slowing until almost every daily object we lay our hands on contains processing power.

Many more years

Earnings growth for ARM is forecast at 14% this year and 22% in 2015. That’s a slower rate than it has been, but I think it’s still plenty to justify the current P/E and provide room for further growth.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and GlaxoSmithKline, and owns shares in Tesco and Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.