Mid-Cap Mullering

Two trading days into December and lots of damage. Here is a message from an English investor/broker whose views I greatly respect (full message here):

The mid cap stocks have been thoroughly mullered in the past two or three weeks.

Companies with excellent track records, strong finances and trading down 35% - 50% from their highs of the year.

The ones Im watching and starting to pick up include KIE

For god's sake, what has a company to do? Cash of c£4 per share puts them on a historic PE of 7 ex cash and 6 if you believe the forecasts. Remember that the company announced results in late Sept (excellent) and positive), has had an IMS in late Oct (excellent) and an AGM statement the other day (excellent). Yet the stock continues to bomb.

Someone somewhere is offloading a lot of the mid cap names and with volumes at rock bottom the price just tanks. Mind you, try buying at the shown price in anything like "sensible" volumes and you see it instantly correct.

Others that are mystifying me (okay so they are partly construction related but are top quality companies nevertheless) and trade on daft multiples:

KLR - world leader in ground works. Strong trading figures.
SHI - leader in insulation materials and oft talked of as a target for St Gobain
CHTR - world leader in welding and compressors (seeing strong demand from O&G/Mining capex in particular)

Even WOS looks a good long term buy, if it ever gets back to the 620p or so it reached last week.

Sometimes it makes no sense. I'm not rushing in, just picking up some quality quality with proven track records, highly regarded in their sectors with solid financials at what look like daft prices.

I couldn't agree more.

Notes:
KIE = Kier
KLR = Keller
SHI = SIG
CHTR = Charter
WOS = Wolseley

A successful prediction ..

.. of mine has been a series of very small bets against there being a UK General Election in 2007. There were a number of senior politicians who thought there would be an election. Let me list them:

Prime Minister, Gordon Brown
Education Secretary, Ed Balls
Ed Milliband
Douglas Alexander

Well, it's only £200, but the frustration to these socialists is worth so much more to me.

Gloomy November

It's been a rotten month for my portfolio. Financials and smaller companies, where I'm overweight, have been badly hit. The figures for 2007 as at end-November:

Me -4.4%
FTSEAllShare +4.7%
FTSESmallCos -9.8%

This looks likely to be my first year of relative underperformance since 1998. No whingeing, it's my fault. The credit crisis has intensified and the Governor of the Bank of England has warned recently of the dangers of a sharp correction in share prices (but he was probably looking at the general level of the UK market, as measured by the FTSE100 and hadn't noticed that there has already been a sharp correction suffered by smaller companies).

My recent strategy, due to scepticism about the strength of the UK economy after 10 years of tax-and-spend socialism under NuLabour, has been to reduce UK exposure, especially to the shares of retailers, and to increase overseas holdings. However, some sectors, such as real estate and and non-residential construction and quite a few smaller companies appear to me to have become oversold. This has led me to purchase: more Kier, Land Securities, and T.Clarke. There are quite a few smaller companies with yields above 5% and P/E ratios below 10 where I'll be looking for bargains as funds become available.