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Beginners’ Portfolio: Tesco PLC, Aviva plc And ARM Holdings plc Lead The 2015 Recovery

This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.

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.

Has Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) finally reached the point where the only way is up? Well, I’ve though so several times already and I’ve been wrong every time so far. But this time there does seem to have been a shift in sentiment, after new boss Dave Lewis made it clear he will take the necessary difficult decisions, including the closure of 43 unprofitable stores, the introduction of more flexible working arrangements and the cancellation of the final dividend this year.

Since a 52-week low of 155.4p on 9 December, Tesco shares are now back up 44% to 223p. That’s still some way below our portfolio entry price of 305.5p, but with an overall loss of 31% (including all costs) our position is a lot less bad than it has been.

Insurance

Aviva (LSE: AV) (NYSE: AV.US) has never given me any cause for worry, and its share price has been climbing pretty steadily since I picked it at 321.4p — at 515p, we’d be sitting on a 67% profit if we sold today, including dividends and after all costs.

But with the acquisition of Friends Life Group on the cards, Aviva is still looking like a great investment to hold. It will be tough on employees, with around 1,500 jobs expected to be lost by the end of 2017, but consolidations in the insurance business were always looking likely.

As it stands Aviva is expected to see 2014 EPS more than double, with dividends back up to an attractive 3.5% yield. There’s an implied P/E valuation of under 11, which would drop as low as 9.3 based on 2016 forecasts. We’ll have to see what the new enlarged Aviva is like, but so far I’m very happy with this particular choice.

Chips with that

On the growth stock front, I really thought ARM Holdings (LSE: ARM) was looking cheap when the price dipped towards the end of last year, and I was fortuitous with the timing when I dumped Quindell and Blinkx and had virtual money to invest.

Since going for ARM at 913.5p per share in December, the price has put on a spurt to 1,028p by the time of writing. So after all dealing costs, we’re already up 9%. A forward P/E of 35 based on December 2015 forecasts might seem high to some, but it’s pretty lean compared to previous valuations of ARM shares. And with no end in sight to the growth in demand for ARM’s chip designs, I think I got in at a bargain price.

The Beginners’ Portfolio might have had a tough 2014, but I’m satisfied with its start to 2015 so far.

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