Turkey of the week: an overrated publisher

This global publisher has been resilient in recession, but its rating is now overstretched. Paul Hill explains why it's time to take profits.

Everyone seems to love momentum stocks that pay dividends and have lots of overseas exposure to protect them against further sterling declines. But I'm not convinced. It is far more important to assess each firm on its own merits, regularly comparing its market value with the stock's intrinsic worth. Then, when a share becomes overvalued, you lock in profits and recycle the proceeds into other more attractive opportunities.

So what of Pearson, a firm whose shares trade at near eight-year highs? Along with owning the Financial Times (15% of sales) and Penguin Books (18%), this global publisher also runs an education division (67%) that offers school, student and professional literature, plus exam services. Historically, this division has been resilient in downturns because it tends to outperform when job prospects are poor (more undergraduates sign up to do doctorates while the unemployed seek to retrain).

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