During these uniquely difficult times, I added proven managers to my core fund holdings. I am constantly monitoring them and when the managers move on I follow them to their new home.
It is the same with stocks. I get many of my best ideas from following strong achievements investors who made their own fortune. I want to mention three here that I have followed with great success over the years.
John Lee, the UK’s first ISA millionaire, is best known for his columns in the Financial Times and his two books on investing How to Make a Million – Slowly and Yummi Yogurt: A First Taste of Stock Market Investing.
His style is to hold significant stakes in a small number of companies over the medium to long term. He gets to know the board members well and stays in regular contact. He favors companies with reasonable returns to reinvest and value-price-earnings (PE) ratios, often with a founding shareholder on the board. His careful analysis of undervalued, overlooked companies often results in many of his holdings being acquired at much higher values.
I’ve tracked his investments over the years and I currently hold three, all of which are still good value with strong growth potential.
Treatt ((TET) is a food supplier to the food industry, and although its shares always look expensive, they are still increasing. It’s a global company of real quality in a growing niche market. The latest update showed confidence despite significant disruptions in consumer demand.
Air partner ((AIR) is a global aviation services group offering private, corporate and cargo charters. The recent acquisition of Redline Worldwide has reinforced its ambitions to become an integrated services company for the aviation industry. With a forecast PE of 5.5, 0.1 PE to Growth (PEG) for January 2021 and £ 15m in cash, stocks look stellar, at levels that even an opportunistic supply could attract.
Jarvis Securities ((JIM) is the holding company of Jarvis Investment Management, a stock brokerage firm and outsourcing service provider for bespoke financial management. The company also provides outsourced and partnership financial services to a growing number of third-party organizations looking to cut costs. The forecasts for the 2020 financial year show a PE of 13.5, 0.3 PEG and 5.5% return.
John Lee and I are both from the same area of South Manchester as Roger McDowell, a good, no-nonsense Mancunian and director of eight public companies. I am highlighting three of these here that I hold. McDowell has experience with business turnarounds and has a well-established “pie” strategy: pinpoint, improve, finish.
Avingtrans ((AVG) designs and supplies equipment for the energy, nuclear and medical sectors with proven expertise in its niche areas. A strong backlog includes decommissioning contracts at Sellafield Nuclear Power Plant, a £ 36 million order for HS2 for custom doors and a core pump maintenance contract in South Korea signed by the recently acquired Hayward Tyler.
The building permit for 1,000 apartments at the company’s old site in Luton adds weight to an already strong balance sheet with a projected PE of 13 and 0.8 PEG.
Hargreaves Services “ ((HSP) Activities include earthworks, bulk handling, mechanical engineering and electrical engineering, as well as a recently concluded, potentially highly profitable German joint venture in the pulverization and mineral trade. The strong balance sheet includes a land portfolio of 15,000 acres with exciting development prospects already underway. With a PE of 11, 0.2 PEG and a return of 9.6%, it seems to be underestimated by the market.
Brand architects ((BAR) is a beauty brand company that used to be an outsourced specialty packaging supplier and now develops its own products. After selling its manufacturing business for £ 35m last year and paying off debt, there is £ 20m left in cash for a company with a market cap of £ 23m. You are effectively getting a streamlined business with a new seasoned management team entering an exciting new transition period for £ 3m.
McDowell also sits on the board of directors Eye ((AUG), a waste disposal company he and Christopher Mills bought for the appeal of a highly profitable business held back by the overhang of a significant tax claim from HM Revenue and Customs. After seeking legal advice that HMRC’s claim was flawed, they both invested.
The shares are traded with a PE of 9.7 and a PEG of 0.5. Although Covid was affected in the second quarter, trading has now improved significantly.
Christopher Mills heads the Smaller companies in the North Atlantic ((NAS) and Oryx international growth ((OIG) Investment trusts that invest in some interesting smaller UK companies, several of which I own.
EKF diagnosis ((EKF) is a point-of-care diagnostic company used by doctors, clinics, hospitals, and laboratories. October is expected to be a record month for sales and profits, with full year performance after several higher revisions this year in line with management expectations.
Manufacturing facilities in the UK, USA and Germany deliver coronavirus testing equipment worldwide. With a PE of 19.7, the 0.1 PEG shows the strong forecasts for 2020.
Renalytix AI ((RENX), a company for in vitro diagnostics with artificial intelligence, was spun off from the EKF in 2018. In August, a research partnership with AstraZeneca was announced to develop and bring to market medical strategies for cardiovascular, renal and metabolic diseases. It’s still an early-stage business and won’t start earning its first real income until next year. The first profit forecast will be available for 2022. This forecast of £ 13m profit from £ 69m sales results in a PE of 31 at current price.
I bought first MJ Gleeson ((GLE) in July 2014 after attending the North Atlantic Smaller Companies Annual General Meeting when Mills pooled some of the portfolio’s stocks. Although the ride has been bumpy lately, the stock is looking good again. The company builds affordable homes, with 80% being bought by first-time buyers supported by the Help to Buy program.
MJ Gleeson has a record order backlog and expects to meet its target of 2,000 homes by 2022. MJ Gleeson has a strong balance sheet, a good land bank with a PE of 14 and a profit for 2021 projected to be five times that of a troubled 2020. He is a “strong buy” for four brokers.
Space rules out further details on other stocks I’ve followed Mills into Ergomed ((ERGO), a global clinical development company specializing in oncology and rare diseases, and Bigblu Broadband ((BBB), a UK-based provider of broadband services to rural homes and businesses across Europe and Australia.
David Kempton is a veteran investor, owner of Kempton Holdings, and the non-executive director of a number of public and private companies, including Hawksmoor Investment Management. He may have an interest in any of the investments he writes about.
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