Riding a wave – for now

Second-hand retailers are riding a bit of a wave at the moment caused by the shortage of new cars. It’s unclear how long this will go on for. Further signs from Inchcape or its competitors that pricing remains strong, and the supply of new cars low, could see the shares perform similarly to last year. All the more so if there is a rotation out of growth shares because of inflation concerns. A value share like Inchcape could benefit from investors looking for profitable lowly-rated companies.

The investment case isn’t only about the market though. Management is also ambitious. The car retailer has a new strategy. The FTSE 250 company said the new strategy, dubbed ‘Accelerate’, features two growth pillars — ‘Distribution Excellence’ and ‘Vehicle Lifecycle Services’.

Looking at its medium-term financial outlook, in ‘Distribution Excellence’ it said it is expecting a compound annual growth rate for profits in the mid-to-high single-digits. In ‘Vehicle Lifecycle Services’, meanwhile, Inchcape said it is pencilling in at least £50m of incremental profit.

While that’s positive, car retailing is typically a low-margin industry. Inchcape is no exception. Operating margins are currently around 2%. That makes car retailing a volume-based game, so the company needs to sell a lot of cars to make a lot of profit.

Overall when it comes to car retailers I prefer Vertu Motors, which I suspect could be a takeover target. I’d be more likely to add it to my portfolio than Inchcape, as I don’t think the latter will do as well again this year. 

One of the top FTSE 250 shares? 

Meanwhile, as a Scot, perhaps I have an unconscious bias towards Caledonia Investments. But the analytical part of me thinks it’s an investment trust that could do well this year – even after last year’s strong performance.

The shares still trade at a discount to the net asset value of 17.5%. That doesn’t necessarily make them good value, but it does provide some margin of safety.

The trust is well established and has been going for 140 years. It invests in both public and private companies with top holdings on the publicly-listed side of things being Oracle, Microsoft and Texas Instruments. UK companies also feature including Polar Capital, Croda International and Unilever. Quoted companies account for 31% of the trust. Some 28% is in private companies and 30% is in funds, these are indirect investments through Asian and US-based private equity funds. The rest is cash.

The ongoing charge versus peers is quite reasonable at 0.98%. Similar trusts will often by charging double. 

The downside could be that the discount widens further and the share price falls. Caledonia’s multi-asset strategy could put investors off investing because it’s less clear what they’re getting. 

However, with access to private companies, I think Caledonia Investments adds a lot of diversification and so I’m really thinking about adding it to my portfolio. This is a share with a path to increase substantially again this year if the discount narrows and the net asset value, so the value of its investments rises. 

The post Could these two FTSE 250 shares go up again in 2022? appeared first on The Motley Fool UK.

The FAANGs are Facebook, Amazon, Apple, Netflix and Google’s parent Alphabet. Bond proxies are blue-chip companies that pay reliable, bond-coupon-like dividends. Think Procter & Gamble and Johnson & Johnson in the US, and Unilever and Diageo in the UK.

These themes are reflected in the portfolios of London’s current best-performing investment trusts in the global sector: Scottish Mortgage (a 10-year return of 609%) and Lindsell Train (625%).

However, as almost all investment literature warns, “past performance may not be indicative of future results”. And I’m concerned this could well be the case with the likes of Scottish Mortgage. This is due to the eye-watering valuations of many of the underlying holdings.

Unfashionable

Value investing, as formulated by Ben Graham aeons ago, has outperformed growth over long timescales. As such, I believe unfashionable, value-focused investment trusts could deliver superior returns in the coming decades.

With this in mind, I’d be happy to buy FTSE 250-listed AVI Global Trust (LSE: AGT) and Caledonia Investments (LSE: CLDN). Their returns over the last 10 years — 130% and 157%, respectively — have been solid rather than spectacular.

Discount-to-NAV specialist

AVI Global (formerly British Empire Trust) was established in 1889, and has been managed by Asset Value Investors since 1985. This trust seeks out listed companies whose shares stand at compelling discounts to their estimated underlying net asset values (NAVs). It looks for attractive businesses, with honest, intelligent management willing to engage with shareholders, and catalysts to bring the share prices to their true values.

It trawls the world for opportunities. For example, it invested in 16 Japanese companies with substantial excess capital, and is engaging with management about releasing it. The trust’s other investments include discounted closed-end investment companies (such as Third Point Offshore), asset-backed groups (such as Sony Corp) and family-backed holding companies (such as Jardine Strategic).

AVI Global reckons its portfolio is at a discount of over 30% to underlying NAV. And with the trust itself trading at a discount of around 10%, I see good value on offer for investors today.

Long-term value investor

Caledonia’s heritage goes back to the shipping empire established by Sir Charles Cayzer in 1878. The trust still enjoys the backing of the Cayzer family today. It says this gives “support to our long-term value investment horizon and provides a foundation to our culture of conservative generational wealth management.”

Over a third of Caledonia’s net assets are private capital investments in 11 UK companies with equity values of £25m-£125m. It has significant direct influence over these businesses and their management. They include control systems firm Deep Sea Electronics and bingo clubs chain Buzz Bingo.

The trust also invests in quoted companies (such as Microsoft and British American Tobacco) and funds, including quoted and private equity. The funds provide broad exposure to areas of the world where it would prove more difficult for Caledonia to invest directly.

Trading at a 17% discount to NAV, I reckon this trust is another terrific pick for long-term value investors.

The post 2 FTSE 250 investment trusts I’d buy and hold for 20 years appeared first on The Motley Fool UK.

Dividend hero

A few investment trusts keep crossing my horizon, specifically those with long track records of raising their dividends. One of them is Caledonia Investments (LSE: CLDN), which has raised its annual dividend every year for 52 years. A small handful of others have managed 50 years or more, but Caledonia’s increases have beaten inflation for more than 20 years running too, and the preservation of real-terms rises is really what I like.

The yield is not one of the highest at around 2%, but the past five years have also produce a 34% share price gain, compared to 17% for the FTSE 100 and 21% for the FTSE All-Share. For a trust aiming to “consistently achieve a long-term shareholder return in excess of the FTSE All-Share Total Return, while maintaining a progressive annual dividend,” I’d call that a success.

And with the shares trading on a 16% discount to net asset value right now, Caledonia Investments is likely to be my next share purchase.

Oil income

I recently sold my holding in Premier Oil, having belatedly decided I’d made a mistake when I first bought it. I still like the idea of a smaller oil company, so I’m looking at Gulf Keystone Petroleum (LSE: GKP) as a replacement in my ISA portfolio.

Until the agreement with the Kurdistan Regional Government was hammered out, bringing about regular payments, I would have suggested you’d be mad to buy Gulf Keystone shares. But since then the company hasn’t looked back — though there’s a bit of a caution right now as payments due in November and December have been delayed until January.

Gulf has come from close to the brink to returning surplus capital to shareholders, with a 7.5% dividend on the cards for the current year. And a further share buyback programme was announced in early December, extending the previous one.

Gulf Keystone is a strong buy candidate — but I might wait until the January payment is received.

Cheap engineer?

I’ve had my eye on Goodwin (LSE: GDWN), an oil, gas, and mining equipment engineer, for some time, and was surprised very recently to read of a 20% share price fall in response to first-half underperformance.

We’re still waiting for renewed forecasts for the full year, but the cause of the company’s 2019 troubles has been the seemingly perpetual blight that is Brexit uncertainty. But that’s relatively short term, and the key strength I see in Goodwin is that its management team has a very long-term focus — and the firm has built value for shareholders for decades now.

It has a global clientele, despite being a small company with a market capitalisation of only around £220m, and it seems to have no trouble building a long-term order book.

The shares are on a trailing P/E of 19.5, and offer progressive and well-covered dividends. And despite the share price shock, we’re still looking at a 12-month gain of 19%, which suggests robust (if slightly shaken) confidence.

The post My top 3 Stocks & Shares ISA buys going into 2020 appeared first on The Motley Fool UK.

Train’s star seems to be rising just as Neil Woodford’s has so unceremoniously fallen, and the recent performances of their respective investment trusts could hardly be different. 

Lindsell Train’s aim is “to maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital.” So, to beat inflation for starters, and it’s been achieving way in excess of that. Although down from an even higher peak in June this year, the trust would still have turned £1,000 invested five years ago into £3,820 today.

So is it still a good investment for a similar £1,000 today? There are two reasons I say no.

Big premium

While the Woodford Patient Capital trust is on a rarely seen 50% discount to net asset value (NAV), Lindsell Train shares are priced at a premium to NAV of 28%. That’s almost as unusual, but it has been a lot higher — reaching a premium of over 90% just a few months ago. I know Nick Train is good, but is he that good?

My other reason is that I think the share price gain is deceptive. If we take a closer look at the trust’s holdings, we see sensible top-quality FTSE 100 holdings including London Stock Exchange (LSE: LSE), Diageo (LSE: DGE) and Unilever (LSE: ULVR).

But by far the biggest holding, at 51%, is in the unquoted Lindsell Train Limited itself, and that’s clearly what’s been driving the trust’s NAV and share price. Do you want to invest £1,000 in a high-flying unquoted growth company whose valuation you have no objective way of assessing for yourself? I don’t.

Track record

I’d much rather put £1,000 into a more traditional and long-established investment trust like Caledonia Investments (LSE: CLDN), and that one is high on my list for my next buy.

Caledonia’s stated target is to “consistently achieve a long-term shareholder return in excess of the FTSE All-Share Total Return, while maintaining a progressive annual dividend,” and it’s been achieving both parts of that and then some.

The trust’s progressive dividend record is one that many will envy, having shown annual growth for 52 years in a row now — it’s one of a very small handful that have raised their dividends for 50 years or more.

Yield

The yield has been modest at around the 2% mark or a little higher, and there are certainly bigger yields out there — but I rate long-term progressive rises above short-term high yields.

The share price has been keeping nicely ahead of the FTSE All-Share too, gaining 33% over the past five years while the index is up 16%, and over 10 years we’re looking at an 86% rise against the All-Share’s 58%.

And Caledonia Investments shares are trading on an attractive discount. With the latest NAV figure at 3,651p, the 3,075p share price is discounted 15.8%, and that makes Caledonia a must-buy for me. And I will.

The post Got £1,000 to invest? I like this champion investment trust appeared first on The Motley Fool UK.

By contrast, I’d be happy to buy Caledonia Investments (LSE: CLDN), one of whose strategies also deploys so-called ‘patient capital’ — that’s to say, capital invested on a longer time horizon, with intensive support of management of the investee company, in anticipation of an ultimately higher return.

Concerns

My biggest concern about Patient Capital Trust has been its rapid morphing into a far riskier investment proposition than that suggested by its launch prospectus.

In particular, Woodford got the board to raise the ceiling on the proportion of unquoted companies he could hold (from 60% to 80%) and to drop a policy of not using long-term gearing (£150m borrowing facilities were arranged and utilised).

My other big concern is that some of the unquoted companies are in the books at what could prove to be over-rosy valuations, due to the subjective nature of such valuations.

Discount doesn’t tempt me

Since the gating of Woodford’s flagship Equity Income Fund and his plan to sell its unquoted and  illiquid holdings, many of which are also held by Patient Capital, the latter’s share price has dived to a steep discount to net asset value (NAV) — currently 33%.

The board has recently agreed a schedule with Woodford to halve the level of gearing within six months and to be ungeared within 12 months. Woodford also now has to get board approval for any new investment or further investment in existing assets.

I view this as shutting the stable door after the horse has bolted. Furthermore, I think it’ll only add to the pressure on the valuation — and in some cases survival — of the investee companies. As such, even the 33% discount to NAV doesn’t tempt me.

Patient capital context

Caledonia Investments is a long-established trust. There’s a particular context for its deployment of patient capital: “Our heritage can be traced back to the shipping empire established by Sir Charles Cayzer in 1878. We continue to enjoy the backing of the Cayzer family, who own some 48.5% of the share capital. The Cayzer family shareholding provides both support to our long-term value investment horizon and provides a foundation to our culture of conservative generational wealth management.”

Differentiated portfolio

The trust employs four strategies. In what it calls its Quoted Pool there are “high-quality compounding companies.” Its current 19 core holdings include Microsoft, Nestlé and AG Barr. Well-known listed companies also feature in its Income Pool. These include the likes of Lloyds, GlaxoSmithKline and Imperial Brands.

Its other two pools — Unquoted and Funds — target higher returns. In the Unquoted Pool there are 11 established UK businesses in which Caledonia has a majority or significant minority interest. For example, Cooke is the market-leading UK manufacturer of premium-end cinematography lenses for film and television. Meanwhile, its Funds Pool is focused on US and Asian private equity funds.

I like Caledonia’s differentiated portfolio and deployment of patient capital in the Unquoted Pool. The stock is trading at an attractive 16% discount to NAV. It also offers a 1.9% dividend yield, and has a record of 52 consecutive years of dividend increases.

The post Why I’d buy this investment trust ahead of Woodford Patient Capital appeared first on The Motley Fool UK.

Income heroes

The most consistent ‘dividend heroes’ can now be named as Caledonia Investments (LSE: CLDN), the Bankers Investment Trust (LSE: BNKR) and JPMorgan Claverhouse Investment Trust (LSE: JCH). These investment trusts have the distinction of raising their dividend by more than inflation every single year — without interruption — for two decades, according to new research from investment platform AJ Bell.

As well as offering consistent dividend growth, Caledonia and Bankers generated a total return of a massive 580.4% and 474.3%, respectively, over the last 20 years, while also increasing dividends by 5.3% and 6.5% a year on average. The beauty of a rising dividend is that it helps you beat the eroding effect of inflation, and give you a steadily growing income in retirement.

I’ve included long-standing investment trusts F&C and Witan in the table below, because they also deserve respect for increasing their dividends by 7.2% and 6% a year, respectively, over the same 20-year period.

Caledonia, which can trace its roots back to 1878, currently has around £2bn under management. It runs a concentrated portfolio of international investments and funds, targeting proven businesses with long-term growth characteristics and the ability to deliver rising income. This is no closet benchmark tracker. Its 10 largest holdings are mostly unfamiliar names to me such as Deep Sea Electronics, Cobehold and Buzz Bingo, although Microsoft was really recognisable at number 10.

As Alan Oscroft recently noted, Caledonia has now increased its dividend for 52 consecutive years, yet it currently trades at a massive discount of 16.3% to net asset value.

Bankers Investment Trust aims to beat the FTSE World Index for capital growth while generating annual dividend growth above the UK retail prices index, again by investing in global listed companies. It’s 30% invested in North American, with slightly less cover in the UK, while the remainder of its £1.17bn portfolio is divided between Europe, Asia-Pacific and Japan.

Mainstream

Here the stock picks are a lot more mainstream, with American Express, Microsoft, Berkshire Hathaway, MasterCard and Visa figuring in its top 10 holdings. The discount isn’t as generous, with just 2.11% to net asset value, but its differing holdings mean it could nicely complement Caledonia in your retirement portfolio.

JP Morgan Claverhouse is a UK equity income fund with a conviction portfolio of between 60 and 80 stocks. It’s also a smaller fund, with £434m under management, and returns are impressive given how the UK has underperformed compared to many global markets. It currently trades at a discount of 4.7% to net asset value.

These three investment trusts could give you all the joys of rising growth and income, with none of the trouble of dealing with buy-to-let tenants.

The post Forget buy-to-let! I’d buy these 3 investment trusts for growth and income appeared first on The Motley Fool UK.

If you’d like to do a little bit better but still don’t fancy picking your own individual shares, investment trusts can be a great way to go. They’re actively managed, but as you invest in them by buying their shares (rather than just handing over cash), you’re part-owner and there’s no conflict of interest or high charges.

Index-beater

Caledonia Investments (LSE: CLDN) aims for a long-term shareholder return in excess of the FTSE All-Share total return, while maintaining a progressive annual dividend. Over the past five years, the Caledonia share price is up 32% while the FTSE All-Share has only managed 7%. And while Caledonia’s dividend yields, at around 2%, are behind the index, the investment trust’s overall performance is living up to its ambitions.

Caledonia has just published its March 2019 full-year results, and has achieved a net asset value total return of 10.9%. Some of that includes currency gains, but we’re still looking at 8.1% excluding those. Net asset value per share (NAV) is up 9% to 3,582p, and the dividend has been lifted by 4% to 59.3p per share. That marks the trust’s 52nd consecutive year of increasing dividends, and is nicely ahead of inflation.

Chief executive Will Wyatt said: “We remain confident that our portfolio construction and underlying investments leave us well positioned to deliver our long term return targets and dividend growth.”

I see no reason to doubt that. And with the shares, at 2,919p, trading on an 18.5% discount to NAV, Caledonia Investments is high on my buy list.

45 years

Murray Income Trust (LSE: MUT) hasn’t raised its dividend for quite as many consecutive years as Caledonia. But having done so for 45 years in a row, it would be quibbling to suggest it’s not reliable.

As the name suggests, the aim is income, and the business has been providing dividend yields of between 4% and 4.8% over the past five years. An investment trust can hold back some of its cash in better years to even out its dividends over leaner times, and while Murray’s earnings have been fluctuating a little over the period, that’s enabled it to keep its dividend steadily growing.

The past few years have seen dividend rises come in a little behind inflation, but I see that as a bit of a short-term anomaly and I expect Murray to keep ahead over the long term.

As my colleague Edward Sheldon has pointed out, the trust puts a lot of its cash into defensive stocks, including Unilever, AstraZeneca, Diageo, BP, and Shell. With the possibility that we’ll be in for some post-Brexit turmoil, I see Murray Income as a safe investment for protecting our retirement nest-eggs.

The shares are currently on a 3% discount to NAV, and while that’s more modest than at Caledonia, it still strengthens Murray Income Trust as a buy, in my book.

The post Investing for dividends? I’d consider these income champion investment trusts appeared first on The Motley Fool UK.

Once you have a broad portfolio and you’re already sitting on long-term profits, handling short-term falls becomes second nature. But if you’ve only built up one or two stocks, a downturn can be very discouraging.

That’s one of the reasons I like investment trusts, as they effectively pool shareholders’ money across a wider range of investments, and that can lead to reduced volatility.

I don’t hold any investment trusts now, but I have done in the past, and I have several on my watchlist. Here are two.

Big discount

One is Caledonia Investments (LSE: CLDN), which I gave a nod to back in October. The trust has a widely diversified portfolio, but its speciality is uncovering and buying up smaller companies with growth potential — and it’s been doing pretty well at it.

It’s global in its outlook too, so I also see Brexit defence characteristics there.

Caledonia shares have done well since I last looked at them. While the FTSE 100 carried on sliding throughout the final quarter of 2018, the investment trust went in the opposite direction.

As a result, over the past 12 months the shares have gained 9% while the FTSE 100 has lost 1% — and the trust is up 53% compared to just 8% for the index over five years. Dividends work the other way, with Caledonia’s 2.2% yield in 2018 about half the FTSE’s — but it’s still a significant overall winner.

Net Asset Value (NAV) per share stood at 3,441p at 31 December, and with a current price of 2,999p the shares are trading at a discount of 13%. I think that’s a bargain.

Better record

My colleague Peter Stephens sees Alliance Trust (LSE: ATST) as an attractive candidate for a starter portfolio, and I agree.

Alliance Trust refocused its investment approach in 2017, and it’s perhaps a little early to tell how that’s likely to work out. But we’re looking at an even better five-year performance than Caledonia Investments, with a rise of 65% — and dividend yields have been similar at around 2%.

Unsurprisingly, shares of a trust with that recent performance are closer to its NAV per share, but they’re still trading at a discount of 5%. That means investors value the company as a whole at 5% less than the assets it owns, and I see another undervaluation here.

Although dividend yields are not great, the trust’s progressive policy should see the actual cash rising ahead of inflation — and over a couple of decades, that can work wonders for your income levels.

Again, Alliance Trust invests globally, and that carries the same relative lack of exposure to Brexit worries in the UK. And I think diversification is important in the early days of your portfolio generally, as it provides a bit of a buffer against local shocks.

I like both

At my stage of investment I don’t really need that single-stock diversification, but I’m looking at these trusts from a different perspective. Although I’m mainly a dividend investor these days, it’s not 100%, and I’m seriously considering the two of them for the more modest growth portion of my portfolio.

The post Looking to invest £2,000? Here are two investment trusts I’d consider appeared first on The Motley Fool UK.

Rupert Hargreaves: Ocado

Usually, I am not interested in growth stocks with multi-billion pound valuations and almost no income. But when it comes to Ocado (LSE: OCDO), I’m prepared to make an exception. 

Over the past year, Ocado has signed several technology-sharing agreements with major retailers, proving that it does have something other retailers want to buy. And I reckon the business is ripe for a takeover by a larger competitor. 

Ocado’s fifth-largest shareholder, its partner Kroger, has been touted as the most likely bidder as it seeks to protect itself against the rise of Amazon. City analysts also believe Amazon itself could be a possible candidate. A bidding war between these two giants would only produce a positive result for investors.

Rupert Hargreaves does not own shares in Ocado.

Alan Oscroft: Caledonia Investments

I love the whole idea of investment trusts, and right now I’ve got my eye on Caledonia Investments (LSE: CLDN).

It provides exposure to a portfolio of top international stocks, while also going for smaller (often unlisted) companies with great growth potential — and then selling them for a nice return later. The dividend, though only yielding a little over 2%, has been lifted every year for the past 51 years.

To top it off, the shares are selling at a discount to NAV of more than 20%. Year-on-year earnings might be a little erratic due to the nature of the trust’s investment strategy, but that should be no problem for long-term investors.

Alan Oscroft does not own shares in Caledonia Investments.

Royston Wild: Croda International

Chemicals giant Croda International (LSE: CRDA) hasn’t managed to avoid the downpour that has swamped stock markets in recent weeks. I reckon upcoming third-quarter trading numbers slated for November 1 could provide the FTSE 100 share with some much-needed thrust, though.

Croda impressed last time out in July when it announced record profits during the first half and solid sales growth across all three of its divisions. Revenues momentum picked up in the latter portion of the period, and signs of more progress in the last quarter could send the company’s share price storming past the all-time highs struck in early October.

Croda’s forward P/E ratio of 24.2 times might be high on paper, but in my opinion the Footsie firm’s worth every penny right now.

Royston Wild does not own shares in Croda International.

Andy Ross: Mondi 

Mondi (LSE: MNDI), is a great company for investors to hold in turbulent times, I reckon. Mondi provides investors with a fairly juicy 3.7% dividend yield, but unlike some of its higher-yielding FTSE 100 peers, it has much more potential for sustainable dividend growth.

Besides the yield, there is a lot to like about Mondi. The most recent results – released in October – showed that the paper and packaging group had seen third quarter underlying earnings rise 30% to €466m year-on-year.

The company’s growth, the defensive nature of the business sector and the prospect of a sustainable growing dividend should serve investors well right now.

Andy Ross does not own shares in Mondi.

Kevin Godbold: BT

I think BT Group (LSE: BT-A) looks set to perform well in November. The telecoms stock has demonstrated resilience during the current bout of market weakness, and I think we are seeing it benefit from the ‘value trade’. Some market commentators have been arguing that we are seeing a rotation out of expensive growth stocks into cheaper, ‘value’ stocks and BT fits the bill for that.

City analysts forecast the plunge in the firm’s earnings to plateau during 2020, which could presage a recovery. Meanwhile, I expect the firm’s valuation to move closer to the market average, suggesting further upside potential for the shares.

Kevin Godbold does not own shares in BT Group.

Paul Summers: easyJet

Ongoing uncertainty over the manner of the UK’s departure from the EU coupled with high oil prices led investors to jettison airline stocks from their portfolios over the summer. Particularly hard hit was Luton-based budget carrier, easyJet (LSE: EZJ).

I see this as an opportunity. While more turbulence across the industry in the run-up to Brexit can’t be ruled out, a near-40% fall since June suggests a significant amount of ‘bad news’ is already in the price.

Shares in the FTSE 100 flyer trade on a lower earnings multiple than rivals Ryanair and Wizz Air. Income seekers may also wish to note that next year’s forecast 64.4p per share payout equates to a chunky 5.7% yield at the time of writing.

Paul Summers has no position in easyJet.

Peter Stephens: GlaxoSmithKline 

Recent stock market volatility could make defensive shares such as GlaxoSmithKline (LSE: GSK) increasingly popular. The company’s financial performance is less correlated to the wider economy than is the case for many of its FTSE 100 peers. This could mean it offers greater resilience and less volatility over the near term.

With a dividend yield of 5.2%, GlaxoSmithKline appears to offer good value for money. Further investment in its pipeline alongside growing demand for its consumer healthcare products could catalyse its growth rate. With a diverse business model, its defensive growth prospects could become increasingly attractive.

Peter Stephens owns shares in GlaxoSmithKline.

Roland Head: BP

If your portfolio is missing any exposure to the oil market, then now could be the ideal time to pick up shares of BP (LSE: BP).

The oil and gas giant’s share price has fallen by about 10% since the start of October. The stock now looks quite attractively priced to me, with a 2018 forecast P/E of 12 and a prospective dividend yield of 5.8%.

Adjusted earnings are expected to rise by 80% to $0.56 per share this year. This should boost cash generation and enable the firm to reduce debt. A dividend increase might also be on the cards. I’d be a buyer at under 550p.

Roland Head does not own shares of BP.

The post Top shares for November appeared first on The Motley Fool UK.

But when I talk to young people who are just starting out and have decades of investing ahead of them, they tend to think that’s a bit boring and want some excitement from growth opportunities. And I think that’s fine, as they can spread the risk out over time.

One approach is to look for companies with great potential, which have yet been realised. And that, as it happens, sums up Caledonia Investments (LSE: CLDN). As well as holding some big international stocks, the investment trust also looks to acquire smaller companies with growth potential and then puts in the effort to achieve it.

Cracking return

On Tuesday, the firm announced its most recent success after the sale of Choice Care Group, a provider of residential services for people with learning disabilities and mental health conditions. The disposal of its 87.4% stake has netted Caledonian £99.4m in cash (including pre-sale dividends of £7.1m).

Considering it paid £49.5m initially for it, invested a further £5.4m in the business, and has also received earlier dividends of £6.1m, that looks like it’s been a canny deal. In fact, it represents an internal rate of return of 14.3%, and a money multiple of 1.9 times. That’s a top result.

The proceeds will be put towards repaying cash drawn under the company’s loan facilities for the acquisition earlier this month of Deep Sea Electronics, an electricity generator and intelligent battery charger specialist.

Caledonia’s dividend yields are modest at around 2%, but it’s raised its dividend for 51 years in a row now. The shares are currently trading on a discount to net asset value of 24%, even after gaining 40% in the last five years.

Go for growth

Another way to spread the risk of going for smaller growth companies is to buy an investment trust that specialises in them. So I do like the look of the Standard Life UK Smaller Companies Trust (LSE: SLS).

As it says on the tin, the trust invests in smaller companies in the UK, looks for growth, and seems to be rather good at it.

A share issue related to the reconstruction of the Dunedin Smaller Companies Investment Trust has led to a fall back in the share price since early October, but we’re still looking at 46% share price appreciation over the past five years, compared with the FTSE 100‘s meagre 5% gain.

Some dividends

And though the trust is firmly chasing growth, it’s still paying a modest dividend too, which has been yielding around 1.5-2% in recent years.

What an investment trust like this relies on is having a good manager and, as my colleague Rupert Hargreaves has pointed out, in Harry Nimmo they have one of the top smaller-companies experts in the business.

At 9.5%, the trust is trading at a smaller discount to some of its peers, but after the recent share price dip, I reckon that makes it look like pretty good value.

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