Each week, aprofessional investor tells us where he'd put his money. This week: Paul Mumford, Cavendish Asset Management.
My approach to investing which has guided me as a fund manager for over three decades now is relatively simple. I look for shares that offer solid long-term growth potential, typically in small to mid-cap companies, which look undervalued. Often it will mean investing on a counter-cyclical basis in areas that other investors avoid.
In other words, I buy low and sell high. It never ceases to amaze me how few investors follow this obvious maxim. A clear understanding of how a business works how it makes its money, and how it will do so in future is also crucial. Otherwise you're simply taking a punt. I talk more about my approach in my recent book The Stock Picker, which also covers past mishaps, including frauds, from which lessons have been learned.
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To mitigate the risks, I will have a wide spread of investments in my portfolios, typically 70 holdings. Below are three stocks from across different sectors that currently fit this bill two slightlyleft-field, and one more familiar name.
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Oil and gas explorer iGas (LSE: IGAS) is one of the largest owners of land for potential onshore drilling in the UK. The company recently went through a bit of trouble, ending up overleveraged. However, it has since made a deal to write off a lot of this debt and has undertaken a successful fund raising. This leaves the firm in a good position and the shares are trading at an attractive price. iGas's existing production gives it positive cash flow and it has the prospect of decent discoveries through its $230m exploration programme, fully funded by large oil companies. iGas's shares are currently priced at under 5p, at a discount to its asset value of 6p.
Aim-listed Vertu Motors (Aim: VTU) acquires motor dealerships across the UK to consolidate within its nationwide chain. It's a decent used-car business with solid cash flow and it recently announced good results for the year, including a substantial rise in the dividend. Although the business operates in a cyclical sector and is towards the top of its cycle, the shares are currently trading at a discount to Vertu's competitors at seven times its earnings, so it is worth a look.
The domestic retailer Debenhams (LSE: DEB) isn't greatly loved by investors, but it represents a decent recovery prospect. The stock has been bumbling along at a low point for a while, but the change in management will see a lot of new ideas come in through the door. Having Sports Direct founder Mike Ashley breathing down the management's neck as a large minority shareholder won't hurt either. While the business gets a lot of criticism for its large, long-leasehold properties, it's probably an easier turnaround prospect than, say, Marks & Spencer. Even now the stock offers a decent yield of 5.8%, which will pay for the investment while waiting for recovery to materialise.
