Like Hannibal in The A Team, I love it when a plan comes together… and that’s exactly what’s happened with my investments in ARM Holdings (LSE: ARM), Tasty (LSE: TAST) and Bioventix (LSE: BVXP), which have all gone up.
The great thing is that all three of these firms seem set to run much further in the long run.
A mixed bag
On the face of it, these three companies don’t have much in common. ARM Holdings is a microchip designer with a powerful hold on the consumer electronics market. We find the firm’s chip designs in computers, smartphones and other devices in the vanguard and mainstream of consumer electronics fashion, whatever the product manufacturer. The firm is a FTSE 100 constituent with a £16,359 million market capitalisation.
Then there’s Tasty, a chain of restaurants rolling out its expansion programme through the South and East of the country. Tasty is AIM listed, and a minnow compared to ARM, with a market capitalisation of £74.5 million. Finally, Bioventix operates in the biotechnology sector and makes its living creating and engineering high affinity sheep monoclonal antibodies to facilitate diagnostic tests in the sector. With a market capitalisation of just under £45 million, Bioventix is also listed on the AIM market.
When and why I bought
One thing the three do have in common is that I didn’t find any of them by rummaging through the ‘bargain’ bin. Good quality, high-growth businesses rarely sell cheap. However, regardless of the price tag, good quality, high-growth businesses are capable of providing satisfactory returns for investors, as in the case of these three in my own portfolio.
ARM Holdings, for example, puts in consistent double-digit earnings’ growth figures year after year. Consequently, the valuation in terms of the P/E rating ‘always’ looks high. However, early in 2014 I formed an opinion that ARM could do very well in our rapidly digitalising world as communication devices migrate to cars, appliances, and just about everything else.
ARM’s competitive advantage seemed undiminished and the firm remained at the cutting edge of its industry. The forward opportunity seemed immense to me. Therefore, I took advantage of share-price weakness in May 2014 and bought my first slug of ARM’s shares for 860p. So far, that investment is working out well. With the shares at 1165p today, ARM is showing me a 35% return and I’m hoping for more.
Tasty’s restaurant rollout proposition appealed to me after reading an excellent write-up here on the Motley Fool by Maynard Paton a few years ago. However, the high rating of the shares initially put me off buying. Luckily, I put the firm on my watch list and saw that operationally it was doing well. When the chance arrived to buy the shares on weakness, I took it, buying my first tranche at 56p during April 2013. Today’s 140p shows me a 150% gain.
Bioventix crossed my consciousness shortly after it moved up to the AIM market thanks to a mention by well-known self-invested ISA millionaire Leon Boros. I took the plunge and bought some shares in October 2014 for 666p, a share price that didn’t spook me, in fact, it’s been lucky! At 898p now, the gain in my portfolio currently sits at 35%.
I’m not selling
These firms are, so far, performing well, so I have no plans to sell my shares soon. Each investment was quality-led with valuation as a secondary consideration. Don’t get me wrong, I made every effort to buy the shares as cheaply as possible, mainly by watching the share-price charts and buying on dips or general weakness. However, I wasn’t overly concerned with finding the cheapest firm in the various sectors.
Sometimes, it pays to shop in the best stores and to buy a high-quality goods at a fair price, rather than shopping in the discount store for cheap, low-quality goods. There are many strategies that can succeed in the stock market and buying high-quality firms such as ARM Holdings, Tasty and Bioventix is one of them. However, I'm trying to protect the downside first and one way of doing that is to think differently from other investors. A special Motley Fool wealth report discusses that point as one of Ten Steps To Making A Million In The Market. This useful paper is available free of charge and without obligation for a short time longer. To download a copy, click here.
Kevin Godbold owns shares in ARM Holdings, Tasty and Bioventix . 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.