Knowing when to sell a share isn’t easy: you’re faced with the constant fear that your profits will gradually fall away if you wait too long — and that you’ll miss out on possible gains by selling too soon.
In this article, I’ll take a look at three shares that have come onto my sales radar recently — and explain why it might make sense to hold on a little longer.
Hikma Pharmaceuticals (LSE: HIK) has been the second-biggest faller in the FTSE 100 over the last month, falling by 10%. The firm’s shares are now down by 20% from their all-time high of 2,617p, in February.
Shareholders may well be tempted to sell now to lock in some profit and avoid any further falls, but I believe this short-term outlook could be a mistake.
Over the medium term, Hikma’s fundamental attractions appear intact. The firm reported an adjusted operating margin of 28.7% for 2014, broadly in-line with the 30.3% reported in 2013. Operating cash conversion remained strong, at 105% of operating profits, and after slipping slightly this year, earnings per share are expected to rise by 18% in 2016.
There’s also the possibility of a takeover bid, in the wake of several recent mergers and acquisitions in the pharmaceutical sector. While Hikma’s 2016 P/E of 18.6 isn’t cheap, it looks reasonable to me, and I’d be tempted to hold on for the long term.
Housebuilder Taylor Wimpey (LSE: TW) shot higher on Friday, in the wake of the Conservative election victory. Although I do believe housing stocks are likely to be close to their peaks, I reckon the housing market should continue to perform well, in the short term at least.
Land and labour costs have not yet risen out of hand, and housebuilders such as Taylor Wimpey currently seem to be in a sweet spot, delivering rising profits thanks to limited supply of and strong demand for new houses.
Taylor Wimpey shares offer a 2015 forecast yield of 5.4%, rising to 6.0% in 2016, backed by net cash and an operating margin which hit 18.5% last year.
I’d be tempted to hold on a little longer.
The recent offer by Royal Dutch Shell for BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) put a clear limit on the likely value of BG Group shares.
The only trouble is that the last seen price of 1,191p, BG shares currently trade almost 10% below the indicative value of Shell’s cash and share offer, which stands at 1,318p, based on a Shell share price of 2,100p.
The figures suggest that buying BG shares today could deliver a 10% profit when the Shell deal is completed. Of course, there are risks — the value of Shell’s shares could fall, and BG shareholder might even vote against the deal.
However, I suspect the deal will go through, and believe that a yield of almost 6% should help to support Shell’s share price. In my view, holding onto BG shares — or even buying more — could pay off.
Roland Head owns shares of Royal Dutch Shell. The Motley Fool UK has recommended Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.