Success breeds success, which is certainly the case with these three stocks. I never planned them to be the biggest holdings in my portfolio, it just turned out that way.
All hail manufacturer FW Thorpe (LSE: FW), now the shiniest, brightest star in my portfolio having risen 372% since I bought it back in August 2013. This AIM-traded designer, manufacturer and supplier of professional lighting systems is a family firm chaired by the ever-cautious AB Thorpe, whose bearish pronouncements on the challenges facing the global economy are repeatedly contradicted by the success his company enjoys in tackling them.
Interim results for the six months to 31 December showed continued growth, with group revenues up 23.8% to £51.2m and and operating profit rising 19.7% to £7.8m. AB Thorpe still found time to worry about rising production costs, caused by extra overtime and shift working as the company battled to meet a spike in customer demand (a nice problem to have, if you ask me). The company’s Australian office is doing well, although its UAE operation is still finding its feet. The interim dividend was increased a progressive 12.5% to 1.35p, although the yield is low at 1.24%. Its valuation of nearly 30 times earnings doesn’t bother me because I have seen the light.
I bought insurer Prudential (LSE: PRU) in October 2009 on its Asian operation’s stellar growth prospects, and my only regret is that I didn’t buy more of the stock. My holding is up 154% since then, which is a pretty handsome rate of return for a solid blue-chip that has sprung few nasty surprises.
The only major surprise is that more private investors haven’t turned onto the Pru, which is nicely diversified across the UK and US, and now generates a third of its revenues in Asia (and rising). It offers the Asian middle-class the pensions and protection that they do not expect to get from the state, and demand for both is strong. The joy of global diversification is that this has offset the hit to UK annuity sales following pension freedom reforms.
Income seekers may pass over the Pru because the yield is typically low, currently 2.45%, but management is progressive, hiking last year’s final dividend by 12%. The valuation is currently 13.35 times earnings, and I am tempted to top up my holding. My aim is still Pru.
Smith & Nephew
I took a fairly big punt (for me) on medical appliances maker Smith & Nephew (LSE: SN) in November 2011 and have been rewarded with a more than doubling of the stock’s value since then. This was my play on the ageing population, who are going to need a lot of hip and knee operations, if my own parents are anything to go by.
With any long-term holding, you can expect the patchy period and recent months have been underwhelming, with the company hit by a Goldman Sachs downgrade, after failing to fulfil the investment banker’s prediction of a 5% acceleration in revenues.
Growth prospects may have slowed, notably in wound, trauma and emerging markets, so I wouldn’t rush to buy at today’s toppy valuation of 18.37 times earnings, and disappointingly low yield of 2.03%, but I will certainly hold. Time and the ageing population are on my side.
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Harvey Jones owns shares of FW Thorpe, Prudential, and Smith & Nephew. The Motley Fool UK owns shares of FW Thorpe. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.