Beginners’ Portfolio: The Slump Is Crushing Aviva plc, GlaxoSmithKline plc, BAE Systems plc And ARM Holdings plc

The recent slump in the FTSE 100 has been hitting some of our Beginners’ Portfolio shares quite hard, but is there a way back for them?

I’ve thought the recovering insurance sector has been undervalued for some years now, and I added Aviva (LSE: AV) to the portfolio in March 2013 at 321p. At 466p today we’ve enjoyed a 43% gain in the share price (accounting for spreads and costs) and we’ve also had some attractive dividends, so it’s been a successful investment so far.

But Aviva shares peaked above 570p in March before the recent rot set in, and they’ve dropped 19% since then. Still, every update I read from the company convinces me further that its recovery strategy and its top management team are just about as good as they can be, and I see no reason for the price fall other than bearish panic.

With forecasts suggesting a P/E of 10 for the full year and a well-covered dividend yield of 4.5% (improving to 9 and 5.3% respectively for 2016), I see the dip as a buying opportunity — and I bought a few myself last week.

Plodding pharma

I confess I’d hoped GlaxoSmithKline (LSE: GSK) shares would have done better by now, after they were added in June 2012 at 1,441p. The company was facing the problem of patent expiry and increased competition from generics, but I thought its strategy of beefing up its development pipeline, while also continuing along a path of biotechnology acquisition, should set it well for the future.

I still think that, but it’s been slower than I’d hoped, and the shares, at 1,284p, have lost 15% for us after costs so far — although a 17% return from dividends has left us just about at break-even. There’s a return to EPS growth forecast for 2016, and in the meantime there are 6-7% dividends forecast, albeit not covered by earnings.

BAE Systems (LSE: BA) came aboard in October 2012, and we’re up 30% with the shares at 451p today (plus an extra 17% from dividends) — though again the price has seen a fall in recent months, down 18% from March’s peak of 549p. July’s first-half report suggested to me that a forecast return to profit growth in 2016 (after a flat year this year) is indeed likely, and P/E multiples of less then 12 with well-covered dividends of better than 4.5% make me still happy to Hold.

Shares in ARM Holdings (LSE: ARM) quickly rose after their entrance in December 2014 at 913.5p, touching 1,233p in March this year. But high-tech stocks are seen as risky, and when the bearish rot set in the City boys deserted ARM — and a 21% fall since then has left the shares at 970p today. But the portfolio is still up a modest 3% after costs, and we even have £3.60 in dividends in the kitty!

But more importantly, I’m convinced ARM still has a great long-term future, and I’m happy I went for it.

Still nicely ahead

Despite these recent slumps, the portfolio has still just about doubled the FTSE 100’s gain since inception.

Buying quality shares when they're at low valuations could even get you to happy millionaire status before you retire.

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Alan Oscroft owns shares in Aviva. The Motley Fool UK has recommended ARM Holdings and GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.