Beginners’ Portfolio: ARM Holdings plc Up 20% While Quindell PLC Slumps 49%

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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.

Having a growth element in a portfolio can make a lot of sense, and for the Beginners’ Portfolio that consisted of video technologist Blinkx (LSE: BLNX) and insurance outsourcer Quindell (LSE: QPP).

But I dumped Quindell in October when I realised that my original decision to buy had been flawed and I decided I simply did not trust the company’s management. Then in December I decided the picture at Blinkx had changed so much that it had lost its early-mover advantage, and it wasn’t the same company I thought I’d seen.

A proper growth share

The cash from the two sales went into buying ARM Holdings (LSE: ARM)(NASDAQ: ARMH.US), and it’s early days but things are already looking good.

Getting out of Quindell was timely, as the price crashed dramatically in the wake of chairman Rob Terry’s decision to dump his stake in the company, and the subsequent requirement from the firm’s bankers for an independent review of its accounting practices and its cash flow situation really didn’t help.

We’ve had a bit of a dead-cat bounce since, but at 71p the Quindell price is still down 49% since I got rid of it.

Meanwhile, partly thanks to an impressive set of full-year results, ARM shares are already up 19.6% — if we sold now, we’d have a profit of 16% after spreads and charges.

ARM enjoyed better-than-expected sales growth, with a record number of new licences helping drive full-year revenues up 16% in dollar terms (and up 11% in sterling). In fact, the year to December 2014 saw 3.5 billion ARM-based chips shipped, which was 20% more than the previous year, and adds strength to the argument that growth in demand is not going to stop any time soon.

Earnings and dividends up

Normalised EPS gained 17%, and the full-year dividend was lifted by 23% — and a dividend growing way faster than inflation should pave the way for a mature ARM eventually turning into a good blue-chip income stock.

I’d thought ARM shares looked cheap for a while, certainly by the company’s past record, and the price has been powering up again of late — at 1,088p today, if I’d been in back in late October I’d be looking at a 30% rise by now.

But I’m convinced I made the right choice, and that there are plenty more good sets of results to come from ARM.

Quindell? No thanks!

What about Quindell? Well, with the PwC report due some time this month, I’ll be surprised if its shares end up being worth anything at all to existing shareholders.

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