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Here's what you missed this week.
Each week, Financial Mail on Sunday and thisismoney.co.uk bring you additional share tips from the long-running and respected Midas share tipping column. See the full Midas newspaper archive: http://www.thisismoney.co.uk/midas
And don't miss our weekly stock market round-up below, written by Graeme Dickson, including his view on the FTSE 100's recovery: 'We don't mind the FTSE rallying to 6500 before the almost inevitable nosedive begins'.
Also this week, we reveal a slump in confidence in UK stocks and UK banks.
Midweek Midas Extra: 14th May 2008
By Joanne Hart, Investments Editor, Financial Mail on Sunday
Diploma
Epic: DPLM
Share charts: http://www.thisismoney.co.uk/dplm
Stockmarket analysts were spooked this week by a raft of gloomy economic data. Estate agents say house prices are falling and retailers say shoppers are not spending yet inflation has risen to 3%, the highest it has been for five years, and businesses are having to cope with big increases in product prices too.
The news sent many share prices lower and the FTSE 100 index, which had been making tentative progress in recent days, slipped back to 6173. The FTSE 250 index, at 10362, was marginally higher than last week however as investors searched for defensive opportunities.
Clearly, these are harder to find than a year ago. But that does not mean they are completely non-existent. Indeed, many share prices have now hit levels which offer real potential.
Diploma is a classic example. The company describes itself as a specialist distribution business, which essentially means that it supplies lots of different products to lots of different companies around the world. The range of goods is impressive - from blood test kits for Canadian hospitals to seals for American jack hammers to wiring for Formula One race cars.
The group divides all these items into three broad divisions, life sciences, seals and controls. The first supplies hospitals, laboratories and biotech companies in America and Europe. The second supplies big industrial businesses across the globe, with a particular focus on repair and maintenance. The third supplies the defence sector, motor sport manufacturers, rail and power groups and medical equipment makers. It also operates around the world although just over half its sales come from the UK.
Diploma does not manufacture any of these products; it simply distributes them. But it makes sure that the goods reach the customers quickly and in tip-top condition. This is particularly important for businesses that either need equipment urgently or stand to lose substantial sums of money if their machinery is not working perfectly.
Most of the items that Diploma supplies have a shelf-life so they need to be replaced or repaired at regular intervals, ensuring a sustainable income stream for the company. The group also benefits from being involved in numerous different industries in numerous parts of the world.
Earlier this week, Diploma reported a 22% rise in pre-tax profits to £13.1mfor the six months to 31 March. The half-year dividend was increased by 39% to 2.5p and analysts expect the total payment to rise from 5.4p to 7.5p, giving the shares a yield of almost 4.5%.
Chief executive Brian Thompson is optimistic about the future and his confidence should be trusted more than most company bosses, as he has been at the helm of Diploma for 14 years.
Midas verdict: Diploma shares are trading at 170p but knowledgeable City brokers believe they are worth considerably more. The price has suffered because some analysts find the company hard to understand and worry about its exposure to the US market. These fears are overdone. Buy and hold this stock.
Chloride
Epic: CHLD
Share charts: http://www.thisismoney.co.uk/chld
Our second company has had an exciting time recently. Midas first recommended Chloride at the beginning of last month, when the shares were trading at 196p. [ Read it now in the April archive: http://www.thisismoney.co.uk/midas-chloride ]
On Monday, the company admitted it had received an offer of 255p a share. The potential bidder is giant American business Emerson Electric, which said it had approached Chloride about a possible offer and was now thinking about whether to bid formally for the company.
Chloride's board has rejected Emerson's initial, informal approach, believing that 255p a share undervalues the business. City followers of the company agree.
The group is due to report results for the year to 31 March in June but recently said sales for the period were up 30% and operating profits were around 50% ahead of 2007. Looking to the future, Chloride has a record order book of £100mand chief executive Keith Hodgkinson is upbeat about the company's prospects.
Chloride focuses on the highly technical power protection market, making equipment that offers uninterruptible power to companies and organisations that cannot afford to suffer from power cuts at any time. These include oil and gas companies such as BP, IT giants such as IBM and Microsoft and even retailers such as Sainsbury's.
The power protection market is expected to grow at 10% per annum over the next five years and Chloride works at the top end of this fast-growing sector.
Shares in the company shot up to 265p after Monday's announcement, valuing the business at £680 million. But Chloride's City supporters believe it is worth at least £770 million, or 300p a share and some suggest any bidder would have to pay even more to win the company.
Emerson is the only business to have declared an interest in Chloride so far but others are thought to be waiting in the wings, attracted by the group's particular focus on power protection products. For American companies, Chloride is also attractive because it has a large amount of European business and it has a joint venture in China too, which is expected to deliver strong growth over the next few years.
Midas verdict: Investors who bought Chloride shares when we recommended them have already seen a 35% uplift in the price. The bid story has only just begun however and the price should rise further over the summer. Hold.
More tips and comments on Chloride shares:
http://www.thisismoney.co.uk/chloride-news-and-tips
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Weekly stock market round-up and trading tips for the week ahead
By Graeme Dixon, Lite Financial
We are now approaching the end of the first quarter reporting season in the US and contrary to some bearish quarters, the results for the S&P 500 companies have fared okay. Nothing spectacular, but enough to get some shorters' to throw the towel in and let the market have its run.
Nonetheless, there is still a lot of pessimism circulating in the market, not least from those in the City who face an uncertain future given the prospective job cuts that threaten their livelihoods. If you combine this with food and energy price inflation, falling property prices and the general sentiment surrounding the credit crunch, you can understand why some people are bearish. I have also read and heard from a number of contacts that this Friday's options expiry (where options in equities and indices expire) both here in the UK and the US, will potentially cue a bout of profit-taking and/or short selling ahead of the summer holidays.
The model that we use at Lite Financial (the firm I work for) measures how many stocks generate bull breakout signals relative to bear indicators. When this indicator goes above 80 pct, it gives us an early 'heads-up' before a market correction. Right now the system measures at 72.5 pct for the FTSE 100 and 75 pct for the FTSE 250. What we have found is that when the 80 pct level is reached, it can stay overbought for about three-four weeks before a correction ensues. As one of my colleagues tells me, we don't mind the FTSE rallying to 6500 before the almost inevitable nosedive begins.
Well we have had another impressive list of gainers over the last week among the FTSE 350 constituents. The largest riser came from Chloride (CHLD), the uninterruptable power supplier, surging 34.5 pct on the week after it received a 255p a share cash offer from US electronics giant Emerson. The company rejected the offer, stating that it materially undervalues the business and its prospects. Since then there has been some glowing comments from analysts such as those at ABN Amro who believe that this company is top of its sector and as such it will deserve a premium rating in the region of 280-400p a share. Enterprise Inns (ETI) notched up a highly respectable 24 pct in the week after revealing to the markets that it may convert to REIT status, effectively setting up two separate business activities: that of a property company and the other involved in the running of the pub business. Enodis (ENO) added a further 17 pct after The Illinois Tool Works Company offered 280p a share in cash, some 20p above the cash offer from the US's Manitowoc. The shares trade above 280p at the moment, in anticipation that Manitowoc will make a counter bid. IMI (IMI) pushed its way up 12 pct, following a positive AGM statement while bid talk fails to die down. Animal geneticist Genus (GNS) managed to pick-up 10.7 pct on the week. There is talk that US beef/pork producer Tyson Foods as well grain specialist Monsanto might be interested in tabling a bid at 1200p (current share price around 880p). Additional to this we hear that a number of Irish investors are possibly interested in bidding for the Basingstoke based company.
Of the fallers we have Old Mutual (OML) down 11 pct after it issued a mild profits warning for 2008 (it was also let down by one of its subsidiaries Nedbank, which also issued a profit warning). EasyJet (EZJ) sank 12.5 pct, reacting to the record highs attained in the price of crude oil. Rightmove (RMV) plunged 11.2 pct in reaction to a multitude of factors including a profits warning from housebuilder Redrow (RDW) while statistics from the Institute of Chartered Surveyors added fuel to the housing market fire. Aberdeen Asset Management (ADN) shed 8 pct after a broker downgrade while the Carphone Warehouse (CPW) gave up 9.5 pct on the week after some traders were left disappointed that Best Buy, the US equivalent of Comet, did not mount a bid and instead injected just over $2 billion to roll-out Carphone stores that stock things like laptop computers and other electrical items.
One stock that some of the guys in my office identified successfully was that of Kingfisher (KGF), the owner of B&Q and Castorama in France. Despite a lot of negative analyst comment on the DIY retailer, the shares continued to push higher and what was more noteworthy was the volume behind it. The volumes on the London Stock Exchange have been dire of late yet more than 50m Kingfisher shares were changing hands per day since Monday, some 60 pct above the norm. You don't have to gain a PhD in applied maths to identify decent trades. All you have to do is watch the tape (trades) and see if it is worth jumping on the bandwagon, if the volume supports the price movement.
For next week, yet again we have a deluge of companies hosting AGMs (too many to mention!)and we will also have a reasonable amount of companies reporting their preliminary and interim results. On Monday, self-storage company the Big Yellow Group (BYG) will post its finals as will domestic emergency supplier Homeserve (HSV) and facilities management company Mitie Group (MTO). Interims come from trade exhibition group ITE (ITE) on the same day. British Land (BLND), Expro (EXR), the oil services group subject to a bid from Candover Investments and Yell Group (YELL) all issue their finals on Tuesday, while on Wednesday we have preliminary results from Great Portland Estates (GPOR). On Thursday we have important UK retail Sales data at 09:30 while finals should be out on Cable & Wireless (CW.). We also have interim results on Thursday from the owner's of this website, The Daily Mail & General Trust (DMGT) and residential letting company Grainger Trust (GRI). Finally on Friday we will learn about how well (or badly) the UK economy is growing with GDP figures out at 09:30, while we should also hear from inter-dealer broker ICAP (IAP) and pub company Marston's (MARS).
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Fund managers turn negative on UK shares
By Franco Capaldo
The number of fund managers who believe UK shares are undervalued has slumped, new research shows. A monthly survey by investment bank Merrill Lynch also shows professional investors have been dumping bank stocks in favour of inflation-proof oil and gas sectors.
Concerns about rising prices have also leapt with 60% of fund managers expect core inflation to rise in the next 12 months - compared to 7% in April. This prompts predictions of higher bond yields with a staggering 80% of investors expecting long-term rates to increase in the next 12 months.
David Bowers, independent consultant at Merrill Lynch, said: 'Evidence is pointing to a possible sell off in bonds as inflation worries mount,' he says: 'A sharp rise in bond yields could help convert this financial crisis into an economic crisis.'
Eurozone investors remain enthusiastic on the commodity trade. Oil and gas, seen as inflation proof, extended its position as Europe's favourite sector with 41% of investors overweight - an increase of 20% from April.
Karen Olney, chief European equities strategist at Merrill Lynch, said the need for commodities in developing markets, not labour, are scarce resources in a slow down - bringing with it pricing power. She says: 'Earnings momentum drives-out performance - not value.'
The other three biggest movers in popularity were chemicals, construction and the industrials with losers being anything linked to the credit binge and/or reliant on the overstretched Anglo-Saxon consumer.
In the UK, cash remained king with managers continuing to hold record amounts on the sidelines. Only 7% of managers now see the UK market as undervalued, compared with 53% two months ago. Following the trend, UK managers no longer saw outlook for growth as the main problem with only 60% now believing the economy will weaken in the year ahead - down 12% from last year. Rather, concerns lie with the impact of higher oil prices and weaker sterling on inflation.
Continuing worries about the UK banks sector has prompted a switch to oil stocks. Last month a quarter of UK investors said banks were undervalued - that number now has fallen to zero. Olney said: 'Banks are being penalised for earnings decay. While still unloved, this month they are no longer seen as cheap.'
The Merrill Lynch survey included 191 fund managers around the world who between them managed a total of about £315bn in assets.
Discounted book offers...
A History of the London Stock Market
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The Naked Trader (2nd Edition)
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Investing with Anthony Bolton (2nd Edition)
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The Top Ten Investments for the Next Ten Years
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Mobs, Messiahs, and Markets
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