Regular readers of the Motley Fool will know my fellow writers and I give our annual tips at the start of each year, and in monthly articles thereafter present stocks we think offer particularly good value at the time. Here’s a review of how my ‘best shares to buy’ this year have fared.
I made FTSE 250 gold miner Polymetal International (LSE: POLY) my tip for 2019. Pleasingly, this one has been my best performer, being up 42.4% at the current time. Having said that, it had also been my tip for 2018 when it declined 10.7%, beating the index’s 15.6% drop, but hardly cause for celebration.
However, I think there’s a lesson here. Namely, that a year is a relatively short time in the stock market, and if you’re confident a business is sound and the valuation compelling, sticking with it is a good idea.
At the start of 2018, Polymetal’s forward price-to-earnings ratio was 11, its PEG was 0.6, and its prospective dividend yield was 4.6%. At the start of 2019, the valuation looked even more attractive, the forward P/E being 10, the PEG 0.5, and the prospective yield 4.8%.
Despite the strong rise in the share price this year, the earnings and dividend outlook is also considerably higher. As such, looking ahead to 2020, the P/E is 10, the PEG is 0.3, and the prospective yield is 4.9%.
Another mid-cap gold miner, Centamin, featured prominently in my picks through the year. Having tipped it early on (currently +3.1%), the shares traded markedly lower through spring/early summer, and I made it my top tip in both May (+26.8%) and June (+26.3%).
I tipped it again as recently as November (currently -3.3%), and, like Polymetal, I continue to rate this stock a ‘buy’. Its forward P/E is a highish 16, but its PEG is 0.4, and the prospective dividend yield is 6.3%.
Going against the herd
I have a strong bias for what I see as fundamentally sound – but temporarily troubled – businesses in more defensive sectors. I reckon selectively going against the herd on such stocks can be highly rewarding.
My tips during the year on this theme were medical devices firm ConvaTec (February, currently +35.1%), Domino’s Pizza (March, +28.9%), BAE Systems (April, +16.3%) and Imperial Brands (July, -6.7%).
I rate the first two as ‘holds’ at this stage, but continue to rate BAE and Imperial as ‘buys’. In fact, I’ve just made Imperial my pick in our December top shares article.
After a 10-year bull market, I’ve been generally wary of highly cyclical stocks (despite cheap valuations) and many growth stocks that appear to me to have become too richly valued.
An exception in the first category was Barclays (October, currently +12.5%), which I felt was simply too cheap to ignore, while an exception in the second category was National Express (August, +12.7%), whose P/E of 12 was undemanding in my book. I see both stocks as still cheap enough to buy.
Keen on this theme
Finally, Smiths Group (September, currently -1.9%) represents a theme I’ve become increasingly keen on this year. Namely, a company I reckon could create value for shareholders with a major de-merger or sale of part of its business.
I’d rather see companies pursuing such value-unlocking strategies at this stage of the cycle than embarking on major acquisitions, which can often prove value-destructive at market-top prices. I continue to rate Smiths a ‘buy’ as it pursues a de-merger of its large medical division.
G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, Domino's Pizza, and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.