MOVED TO WORDPRESS

Google's Blogger is giving me bother. My blogging fun is continued here ... MY NEW WORDPRESS BLOG

Change from blogger

I've decided to change, at least for awhile, from using Google's Blogspot to Wordpress. I am becoming more interesting in Linux, and have found that Blogspot was rather finicky with privoxy, my web proxy. BTW, I highly recommend using privoxy to filter out a lot of the garbage that is pumped onto web pages. It looks as though Privoxy is blocking some crucial aspect of the way that Blogspot works. So it's a case that either Blogspot goes, or Privoxy goes. Importantly, Wordpress has a search facility. So there now doesn't seem much of a reason for me to stick with Blogspot. Even better, I can author posts in "Blogilo" - a neat little offline tool for KDE, and perform an upload from that. It's not looking good for Google. Google: http://alt-mcarter.blogspot.com/ Wordpress: http://mcturra2000.wordpress.com

Mr Market smells a rat

There is an interesting comment on Paulypilot's pub regarding EROS (Eros International) - a worldwide distributor of Indian films.It was entered as part of the NFSC competition. Earnings are expected to grow at double-digit rates over the next couple of years, and it trades on a PER of only 7.

CantEatValue responds as follows:

The story looks good, the profits look good and the potential looks even better.

 There's a "but":

I'm now going to argue that not everything is as rosy as it currently seems. ... If the accounting were to be more conservative and they expensed all this asset build up directly they'd have made no profit at all. ... the huge capex spends haven't even been all that successful in producing growth even with the generous accounting, with return on equity having dropped every year in the last five.

He elaborates, but you already get the idea where this going.

It seems to all fit a general pattern, too, along with the likes of GNG (Geong International), RCG (RCG Holdings), ACHL (Asian Citrus Holdings) and my new entrant, PTEC (Playtech).

What I notice is: less than a decade listing, it's India, increasing number of shares in issue (although EROS doesn't seem too bad), decreasing ROE, and low PER.

It's very interesting, isn't it, that EROS is on a PER of 7.2 with forecast earnings growth in double-digits. Why so low? It has a market cap of £272m, so it's hardly off everyone's radar. The more I look at blogs, read ADVFN (I'm not get paid to mention them, BTW), and Twitter, the more I doubt that there's such a thing as a company that's under the radar, anyway.

Mr Market is giving a clear signal that he doesn't like this one. I know we're not supposed to take investment advice from Mr Market, but still, I think he smells something fishy.

I think I know how this works, too: people see the growth and value characteristics, buy, become disappointed, and leave. The company "eats up" its pool of potential investors, leaving the share languishing.

It's also interesting to take a look at major shareholders. ACHL is a £443m company. It has as major shareholders Market Ahead Investments Ltd, Sunshine Hero Ltd, Wellington Management Comany LLP. Never heard of them. Now compare them with a company like CWK (Cranswick), which makes Jamie Oliver sausages, amongst other things. Alas, it doesn't actually use Jamie Oliver as one of its ingredients; that's just clever marketing. CWK has a market cap of £388m - a bit less than ACHL - and counts amongst its major shareholders Amvescap, Legal & General, Jupiter Asset Management.

See the difference? One has a list of major shareholders none of whom anyone as heard of, whilst the other, smaller, company is owned by a clutch of well-known insitutions. Makes you think, right?

Look at what the brokers say. EROS has 3 analysts, and all 3 rate it a "strong buy". CWK has 5 analysts, 1 of which has a strong buy (presumably the house broker), and 4 have a neutral. So why aren't the institutions investing in the larger, "better" company? My answer is: because the the institutions know that EROS is junk, whereas CWK has merit.

I'll tell you this straight ... if you were to offer £1000 of shares in any company that I have talked about in this post, with the proviso that I couldn't sell for 5 years, I would choose CWK. And by the way, CWK is trading on the biggest multiple.

Watchlists

Stockopedia has a recent article entitled "7 Ways to Find Stock Ideas". At the bottom, they suggested using a watchlist. This is something that I have started recently wrt to my defensive portfolio. I believe that this idea has much more merit than is generally recognised. No-one missed what happened with Tesco, of course, but there are plenty of other companies that you hold, or would like to hold, where the usual Brownian motion (not a reference to a certain self-proclaimed world-saving ex-chancellor and Prime Minister) of the  share price pushes it too low, or too high. 

I'm developing my own bit of software that looks at price levels of a company I am interested, and flags up the cheap and the expensive. I'm also starting to use ADVN a lot more. They have an excellent price alerts page. If a company looks interesting to you, then why not set a price that you are interested in buying. I have 24 entries in my list - although some of them are sales, and some for testing purposes. Here's a sample of my buy prices: DNO (Domino Printing Sciences) at 440p, OPTS (Optos) at 160p, RR. (Rolls Royce) at 670p, TSCO (yes, that again) at 260p, VOD (Vodafone) at 148p.

Now, some of these numbers look a little unrealistic; but you never know. I think TSCO will prove to be too resilient to fall as far as 260p. I already have some TSCO, so there's little point in me setting a price near comparable levels. If I am to top up, then I want it to be in the absurd price range. VOD is at 173p, and its share price tends to trade in a narrow range. So setting a price of 148p looks like a stretch. On the other hand, its 52-week low was 156p.

I think that a watchlist also adds another important dimension: maintaining discipline. It is too easy to become carried away with one's own ideas, and rush to invest. A watchlist helps maintain an air of detachment.

Top of the Pops

Oh, that's neat.

My defensive portfolio over on Stockopedia has actually made it to a year. The thing that makes me really proud is that it's the top-performing fund over the year. It returned 13.28%, against the FTSE350 of -2.41%. A nice little outperformance. AFAIK, spreads and dealing fees are factored into the performance - although I have no control over how that is calculated. No share has been sold at a loss.

I only wish my real-life portfolio performed that well.

In the portfolio, I recently sold off BATS (Brit Amer Tobacco), which is towards the high end of its valuation. In real-life I still hold it.

Looking at the portfolio, I think the selection of MKS (Marks & Spencers) was a mistake. It has not been a huge mistake performance-wise, but on reflection it doesn't quite fit the criteria I was looking for in the portfolio. It is currently so cheap that I am reluctant to eject it from the portfolio.

One thing I do observe is that there have been no really bad calls (again, unlike in real life). Sure, there are some that are down. AZN (Astrazeneca), the worst performing share, is down 6.4%. I don't call that a disaster, though.

The portfolio has 12 companies in it, although there's about 3 that are quite small. I would like to aim for about 10 companies, of roughly equal weighting. At the moment, nearly 10% of the portfolio is in cash, due to the recent sale of BATS. I haven't figured out a good replacement yet.

Most of the companies fall in the "acceptable valuation" range. None I consider daftly overvalued. Astrazeneca, Reckitt Benckiser, Morrisons and Smith & Nephew are at the low end of their historic valuations (which I define to be less than the 20th percentile of their decade PE) . Marks & Spencer is edging towards its low region of valuation. So actually, I'm encouraged that the portfolio hasn't "run out of puff".

I would like to make some general observations. The first is that the companies weren't selected on a "cheap as chips" basis. AZN does have an amazingly cheap valuation of PER 6.35, but BSY is on a PER of 15.05. Last year, HLMA (Halma) reached a valuation which was too high, and I should have been more alert and sold it. The valuation level has come back down, so I missed a trick there. I hope that I have learned my lesson. Hence my reason for ejecting BATS from the portfolio. Another observation, mentioned above, is that the portfolio has had no disasters. It seems to have followed Buffett's dictum that you don't have to do many things right, just as long as you don't do many things wrong. Just look for good solid companies at reasonable (they don't have to be fantastically cheap) prices, and you'll do OK.

I don't think my method for finding safe companies is fool-proof. I could well imaging that I might have short-listed HSV (Homeserve). It has had over a decade of high ROE and increasing revenues, but it has been under investigation by the FSA (Financial Services Authority). It is on a PER of 8.35. This is a company that I'll keep away from. Too risky. It might, of course, make a strong rebound, and it looks like a Greenblatt Magic Formula company. I've seen enough of these companies where the magic died that I wont be adding it to the portfolio. 

In this portfolio, slow and steady is definitely winning the race.

And yet, of course, whilst I'm busy congratulating myself on a job well done, it's much harder to really know how much of it was luck, how much was judgement, and how much of it was market dynamics. Was it luck, for example, that kept me from noticing HSV and including it in the portfolio? And didn't I just benefit from the general "risk off" attitude of the market? My shares in Pace, for example, which wasn't in the portfolio, have had a torrid time last year. No-one could have really predicted the travails that Pace had encountered. Also, some of the shares that I have liked a lot have had a bad performance last year. Shares like AFF (Afferro Mining) - admittedly a riskier mining play (of all things) - but when you look at the cash position, and its resources (which are being counted for nothing), I think it is a good selection. It was taken down by the general market. There's nothing I can do about that. YTD (year to date), it's up 35%. The market has suddenly decided that it likes miners again. Another share that I like - SHG (Shanta Gold) - is up a monster 61% YTD. I still don't think it's anywhere near its true value.  Yet in 2011 it was all over the place, by which I mean "mostly down".

Sometimes Mr Market gets it wrong, and sometimes you get it wrong. And it's often difficult to decide which one of you is wrong. The recent suspension of CPP has been another humbling lesson in why I'm not as smart as I like to think. Fortunately, CPP was not a huge part of my portfolio. But it was definitely a drag on performance. Something that I would have preferred to avoid.

I think there is a general kind of lesson here that keeping a steady ship is likely to be the better course of action; with the proviso that you can go against Mr Market if you're pretty sure you're right. I would say that, in general market panics, where everything is being marked down, that is usually the better time to buy. i think you cna get a "sense" that the market is just throwing itself off a cliff. If there are company-specific problems, then that requires special caution. With something like HSV, discussed above, you're doing a high-wire act. It's very impressive if you can pull it off, but there's going to be a lot of mopping up to do if the situation deteriorates. Unless you know for sure, you're taking chances.

Operating Profit Margin deciles

I've dug through Sharelock, and obtained operating profit margins for companies having a market cap of at least £200m.

Here are the deciles:
P0   -235.43
P10     3.50
P20     6.22
P30     8.37
P40    10.86
P50    14.22
P60    18.11
P70    21.54
P80    30.43
P90    49.24
P100  109.40


I have excluded companies that do not have OPMs. These are mostly financials.

CPP - shares suspended

Description:

CPPGroup Plc (CPP) is an international company engaged in Life Assistance business with operations in 15 geographical markets in both developed and developing countries. CPP has launched range of products, which include card protection, mobile phone insurance, legal assistance and identity theft protection. CPP is also engaged in the provision of Packaged Accounts where it sources products and services to create a tailored package for bank account customers. CPP also provides a range of travel support services, such as translation and lost-and-found luggage services, as well as access to airport lounges worldwide. Its joint venture with Mapfre Asistencia provides assistance for plumbing, drainage, gas, electrical and other home-related emergencies.

Today it announced that trading in shares will be suspended:

follows communications from the FSA over the weekend concerning its investigation into certain issues surrounding the sale of the Group's Card Protection and Identity Protection products in the UK. The FSA has requested CPP to undertake a review of certain past business sales and to make certain changes to its renewals process. The request comes as a result of the FSA's findings into CPP's sales practices.

Needless to say, I deeply regret buying this dog. I shouldn't have let it's good returns on equity and cheap price influence the fact that, at base, the company provides a pretty skuzzy product. I ignored Buffett's first rule: don't lose money. You don't have to do many things right, just so long as you don't do many things wrong. Sigh. I live and learn. Hopefully.

Mind the gap

I'm reading about gap analysis from an article on StockCharts.

Common Gaps

aka trading gap or area gap. Usually uneventful, e.g. going ex-dividend. Unlikely to produce trading opportunities.

Breakaway gaps

"The exciting ones". They occur when the price action is breaking out of their trading range or "congestion area". A congestion area is a ranged sideways movement over a few weeks or more. Breakaway gaps from this range have high volume. The change in the trend has a good chance of continuing. Don't assume that the gap will be filled - it might take a long time.

Runaway gap

aka measuring gaps. High volume. They are gaps that are caused by increased interest in the stock. The confirm that a trend will continue.

Exhaustion gaps

These appear near the end of a trend. High volume. They often indicate the end of a trend. A reversal can occur. The can easily be mistaken for runaway gaps if one does not notice the exceptionally high volume. "Exhaustion gaps are probably the easiest to trade and profit from".

Conclusion

There is merit in saying that common and exhaustion gaps tend to get filled. Holding positions waiting for breakout or runaway gaps to be filled can be devastating to your portfolio, though.

Tweets

Interesting tweets I've kept an eye on:

02-Jan-2012 MrContrarian Mr Contrarian
My top UK share tips for 2012. From lowest risk: SIA, TLPR, SRT, LOQ, SBT, BKIR, FCCN, OMI.
Tracker & info freesharedata.com/mrcshares2012
13 hours ago Favorite Retweet Reply

09-Jan-2012 MrContrarian Mr Contrarian
Want income/cap gain? Lloyds pref shares v likely to restart divs soon. 11.7% yld on LLPD if so. bit.ly/wwLvXn bit.ly/AypePf

09-Jan-2012 MrContrarian Mr Contrarian
Investor's Chronicle (IC) Tips of the Year 2012. Track the performance of these 8 shares at freesharedata.com/ic-tips-2012

11-Jan-2012 paulypilot Paul Scott
Doubled up on £GMG, shitting myself though! I don't think it's bust, should multi-bag if Banks adjust Covenants. £20m f/holds, and £30m depn

23-Jan-2012 smarkus Steve Markus
Cautious but fairly positive update frm Finsbury Foods (£FIF.L, $FIF.L), revenues up, 1st half in line tinyurl.com/6veeoyq


09-Feb-2012 paulypilot Paul Scott
Impressive-looking results from Rolls-Royce. Underlying EPS up 25% to 48p. Shares 785p. Could be 100-200p upside on that, IMO.

09-Feb-2012 paulypilot Paul Scott
£GMG - 2 big sellers, per RNSs. When they're finished, should shoot up IMO. Much too cheap considering Banks now onside.

Thoughts on Defensive Strategies

In less than a week today, my defensive portfolio on Stockopedia will have its anniversary. During that period, it has returned 12%, compared with its benchmark index (FTSE350) , which is down 4%. A 16% outperformance - I can live with that.

Now, it could of course be that the market has favoured strong companies last year, and that I had merely chosen a fortuitous time to start the portfolio. During a tearaway bull market, it would be almost inevitable that a basket of conservative companies will underperform. However, I would like to draw on a couple of sources that give me encouragement to continue my portfolio, and refine the process.

My first source, is an investor who I like to follow on Motley Fool: F958B. I hope he doesn't read this blog. That would be embarassing. Anyway, he was relating how, following a defensive strategy, he has been able to generate a captial return of over 10% pa over the last decade. Given that the market has gone nowhere in the last decade, that's an impressive return. He does have gold in his portfolio, though.

My second source is Buffett. He once commented that even if you only knew 30 companies on the "big board", you could achieve a superior return. You would have to know what the 30 were, though.

It has made me think about how a defensive strategy might work. A good place to start would be to look at the Footsie, or FT350, and eject all the cyclicals. Take a chainsaw to the miners, banks, housebuilders, and so on. The ones that are left should be the fairly stable ones. Check their balance sheets, and reject the over-indebted. This gives you a much smaller list to look at. The good news is that I don't think that deep insights are required to understand the company. Everybody understands Tesco, right? No Mike Burry genius required there.

The next trick is to look for the ones that seem historically undervalued. This is where my skills as a programmer comes in handy, as I am able to automate statistical procedures. One test that I have been working on this week is to look for companies in which their PERs are in the P20 (bottom 20% of their historic range) or P80 (top 80% of the range). Once a month, one could perform a scan of the companies in the portfolio, and eject the ones that are overvalued and buy the ones that are undervalued. It's really quite simple. I am not saying it's the only or best test that you can do. You can slice-and-dice against a different statistic, if you like.

At the moment, pundits are wondering if the market is overvalued, fairly valued, or we've started the next bull run. One guy will say that the PERs are cheap, and another guy will say that on a PE 10 basis, it is expensive, and that the high margins that companies are experiencing now are likely to evaporate.

I have been doing some preliminary work on the stats, and I must say, they do look encouraging. Choosing companies more-or-less at random, I see that GRG (Greggs) the bakers is very very close to its P20 level, suggesting it is quite cheap. TSCO (Tesco) the supermarket is cheaper than it has ever been over the last decade. VOD (Vodafone) the mobile telecom company, is on a PER of 10.5, within a whisker of its P20 level of 10.0.

I reckon it should be relatively straightforward to select 10 low-risk companies that are fairly cheap. Provided your insight into the general safety of the company isn't worng, you would have good downside protection. By carefully rotating out stocks that are expensive, and buying in stocks that are cheap, I hope to improve the performance of my defensive portfolio further. I would be well pleased if I were able to generate a 10% capital return pa. I would probably generate an above-average income, too. This might not sound a lot to most people, but I would be quite happy with that return.

We shall see.

Anthony Bolton's Nemesis

Copied from a TMF article. Sometimes it's worth reminding myself of the basics.

Bolton reveals three investment mistakes he has made repeatedly:

• poor management
• ineffective business models
• weak balance sheets - his number one factor

Bolton says that some of his favourite types of shares are those with limited downside and reasonable upside. In his own words: "These 'skewed' return companies are ones where you shouldn't lose too much money and you might just do very well."


IIRC, Pabrai did an investigation into Buffett's worst mistakes. Weak balance sheets featured highly.

Contrariwise, Greenblatt seems to have made a lot of money in mundane businesses which had a lot of debt which was gradually cleared up. I have also been reading through BB posts where people have invested in some very sticky situations, and seem to do quite well at it. It looks to be a high stakes game where picking exactly the right spots, and timing, are crucial.

Thomas Cook - still a mess

TCG.L (Thomas Cook) shares rose 3.9% today in early morning trading on the back of their IMS, as they reported results for 3 m/e Dec 2011.

Revenues were up 3%, helped in part by the Co-op and Russian joint ventures. Losses from operation were £91m, compared with prior year of £37m. The company cites tougher trading conditions, rising fuel costs, and disruptions in MENA (Middle East and North Africa). As ever, with Thomas Cook, there's always something. Chief Executive Sam Weihagen said "I have been encouraged by how out booking have developed". It still seems that the directors are viewing the world through rose-tinted spectacles.

The group incurred £24.9m of exceptionals, against comparative period of £16.9m. Exceptionals are not to exceptional at TCG. I totted up the basic EPS of TCG since its flotation in the previous decade. It comes to -27.05p (a loss). Compare that with its adjusted EPS total: 119.47p.

Free cash outflow for the quarter was £740m, against comparatives of £639m. TCG intends to sell off its Indian business to help reduce debt. It will also explore other opportunities.

Four directors will retire at the conclusion of the company's AGM today. Good riddance. A replacement is also sought for group CEO, Same Weihagen, who took up the position in August 2011, and will stay until an appropriate candidate is found.

Unfortunately, the IMS didn't mention the net debt position. I assume it is worse.

Although the market has reacted well to the IMS, I don't see much to cheer about. There just seems no end of the problems in sight. Based on the finals, rather than the latest IMS, TCG is on a PER of 1 (!), and a PBV of 0.1, so Mr Market is clearly having a lot of reservations on this one. Market cap is £113m, and net debt is £891m - clearly something is wrong with this picture. The latest free cash flow for the full year was £18m (190m net cash flow less 172m capex). This puts is on an EV to free cashflow of 56 ( (113+891)/18) - not cheap at all. It looks like it is going to take some kind of minor miracle to turn this tanker around.

TALK - TalkTalk

Much-maligned (and for good reason) fixed line telecom operator TALK.L (TalkTalk) is up 9% in early morning trading on positive IMS. They have raised guidance on EPS and EBITDA for the full year, and their cost savings are doing well, and their YouView launch is on track.

They also reported that "continuing improvement in customer experience has stabilised churn". TALK is a cheap'n'nasty phone and ISP, which has attracted much criticism from the press, and has been found guilty last year of mis-selling by Ofcom, the communications regulator. Check out online forums, where there are accusations aplenty over their contract periods and poor service. From what I've heard, I wouldn't touch this company with a bargepole.

The IMS states that it has continued to make significant improvements to customer experience, although my general perception is that TALK is patchy in that respect. It's a bit on-again and off-again.

With YouView, you can catch up on missed telly programmes, and view them on your TV. You need broadband and a set-top box.

At yesterday's share price of 118.9p, TALK has a market cap of £1.1b, a PER of 8.0, EV/Sales is 0.88, yield is 6.5%, and net debt to EBITDA of 1.9 (438/225). Sector average for PER is 10.8, and EV/Sales of 1.12, so TALK is a little cheaper than its peers. BT has net debt to EBITDA of 1.6 (9505/5886).

Director ownership is high. Charles Dunstone's stake is worth £384m, and another two directors own over £1m each. In May 2011, director Ian West bought £250k worth of shares at 138p, and £153k worth in Feb 2011 at 153p.

DTG - Dart Group

DTG.L Dart Group

DTG has been on a lot of value investors radars, including kelpiecapital,  ExpectingValue, valuestockinquisition and valuehunter. Good find, guys. Did I miss anyone? Anyway, their write-ups are excellent, so I state things briefly:

Dart Group PLC is an aviation services and distribution company

It operates budget aviation services throughout Europe with Jet2, and is one of the largest distributors of fresh and chilled produce to wholesale and supermarkets.

At 71p, the market cap is £101m, PE 5.0, yield 1.9%, net cash £94m, PBV 0.63, price/free cashflow 2.2, if you can believe that. Analyst forecasts look OK, so there's not much to dislike on this one.The CEO owns £40m in shares - about 40%, and there was a very recent director (Mark Laurence) buy for £49k.

The beginning of January was a great time to buy, where the shares were around 62p, near a year low, and technically oversold. It was a fair bet that anyone buying at that point was making the right decision. So naturally I didn't buy any! I mustn't complain, though, January has seen the markets make a dash for trash generally, and fortunately the trash I owned was eagerly sought by the market.

DTG has been zooming along during the last week. It's looking overbought at the moment, although it's still very cheap on fundamentals. I wont be buying any, though, as I'm trying to kick the nasty trading habit I seem to have acquired. I own companies that I'm happy with anyway, so it's better if I don't hop around.

I had disposed of PTEC (Playtech) earlier this year, in order to top up on AFF (Afferro) and SHG (Shanta Gold). AFF has had a monster run this year. It is currently overbought, and the shares are falling off their peak of 83p to 74.15p now. If the shares fall below 66-68p, I plan to sell my BLT (BHP Billiton) shares and top up on AFF. We're at less than net cash even now, and I think AFF ought to give a magnified performance (for better or worse) over BLT.

I think I should treat myself to something with my recent VOD divvies. Thank you, Mr. Vodafone.

Sector relative strength

Following on from my previous post, the relative strengths of sectors for 1 month compared to the Footsie are as follows:

ALTERNATIVE ENERGY     2 -15.93
FOOD AND DRUG RETAIL   8  -6.13
MOBILE TELECOMMUNICA   4  -5.39
HEALTH CARE EQUIPMEN   6  -5.22
TOBACCO                2  -5.07
INDUSTRIAL METALS AN   5  -3.17
GAS - WATER AND MULT   6  -3.00
ELECTRICITY            6  -2.95
EQUITY INVESTMENT IN   5  -2.88
PHARMACEUTICALS AND   12  -0.38
AEROSPACE AND DEFENC   9   0.17
REAL ESTATE INVESTME  26   0.44
FIXED LINE TELECOMMU  10   0.66
NONLIFE INSURANCE     12   0.86
LEISURE GOODS          2   1.50
INDUSTRIAL TRANSPORT   7   1.60
FOOD PRODUCERS        21   1.66
TRAVEL AND LEISURE    39   2.78
REAL ESTATE INVESTME  14   3.13
SUPPORT SERVICES      57   3.69
CONSTRUCTION AND MAT  14   4.24
FINANCIAL SERVICES    37   4.69
GENERAL INDUSTRIALS    7   4.90
ELECTRONIC AND ELECT  13   5.70
OIL AND GAS PRODUCER  45   6.15
MEDIA                 26   6.16
OIL EQUIPMENT - SERV   7   6.48
BEVERAGES              6   6.73
SOFTWARE AND COMPUTE  23   6.83
INDUSTRIAL ENGINEERI  15   6.86
LIFE INSURANCE        11   7.42
GENERAL RETAILERS     27   7.73
FORESTRY AND PAPER     1   7.83
TECHNOLOGY HARDWARE   10   8.00
HOUSEHOLD GOODS AND   10   8.81
MINING                37  10.50
PERSONAL GOODS         3  13.57
CHEMICALS              8  13.68
AUTOMOBILES AND PART   1  13.79
BANKS                  7  22.61

The second column gives you the number of companies per subsector. The third column is the relative performance. As you can seem banks have had a blistering run. Things are a little mixed up - for example mining has had a good run overall, but not "industrial metals and mining"

Relative strength

I just had a peek at those companies with a cap of at least £100m that have fallen the month over 1 month. Amazingly, TSCO (Tesco) is third on the list, down a monster 23% relative to the Footise. Last week, its RSI was below 20%, making it aggressively oversold. TSCO was up 2.4% on Friday, and it is possible that the market might be relenting.

The only two companies that have performed worse than TSCO (over £100m - that fact is important) is CPW (Carphone Warehouse) and ESSR (Essar Energy). CPW roughly halved in share price on 27-Jan-2012 due to a special dividend of 175p. So its presence as the worst performer is just a statistical anamoly. It hasn't actually done too badly over the last month.

ESSR was floated in May 2010, entering the Footsie immediately. ESSR is in the "Alternative Energy" sector. I'm averse to this sector, but, upon reasing Google Finance, its activities seem more down-to-earth:

Essar Energy Plc is an Indian-focused energy company with assets in the existing power and oil and gas businesses. The Company combines the existing energy portfolio of the Essar Group, a diversified Indian business corporation.

Seeing the word "Indian" is almost as bad as seeing the words "Alternative Energy" in my books, though. More on that below!

ESSR has a forward PE of 9.9 (rolling figures are currently distorted by anomolous EPS figures), but it does have net debt of £2.6b against a market cap of £1.7b. Its interest cover at the recent finals stage was 1.87, which is far far from ideal. There seems to be a lot of funny-business surrounding this company at the moment. Directors own a neglible number of shares, but there is a massive shareholder, "Essar Global Ltd", that owns a whopping £1.4b. That's over 80%! I don't know entirely what the deal is here, some kind of family business pooling their interest, or something. I'm disinclined to dig deeper, given that I don't intend to touch this company with a bargepole. I sincerely doubt that I'd like what I saw, anyway.

The fun never seems to stop at ESSR, as there appears to be wrangles with the Indian authorities over a tax bill. That's just a mere entree compared to this little gem from Reuters, though:

chairman Ravi Ruia would step aside temporarily after the Central Bureau of Investigation (CBI) alleged that he had suppressed facts about the extent of an Essar Group holding in Loop Telecom, which is being probed in a multi-billion-dollar telecoms case. The CBI filed fraud charges against Ruia and other executives at Essar Group ... [ESSR said] that the charges did not relate to Essar Energy, and were not expected to have any impact on Essar Energy's business operations.

Hmmm. To borrow a quote from a poster on an RCG Holding board: "fishier than a box of flounders". Best stick to TSCO if you're looking for an oversold company.

Supermarket MRW (Morrisons) is 15th on the list - quite high up really - down 13% relative to the Footsie.

A quick scan running from the top of the list ...

Personal Goods company PZC (PZ Cussons) - famous for their Imperial Leather soap, but they also make detergents toiletries, drugs, "fats", and more besides - is down 15% relative to the Footsie, and is 8th on the list. Good company, but at a PE of 21, no wonder the share price is struggling. It's good, but not that good. Mr Market seems to be coming to senses on this one. Still a lot of froth to be knocked off this one, I would have thought.

BSY (British Sky Broadcasting) is down 9% relative to the index over 1 month. In my Defensive Portfolio over at Stockopedia, I swapped out DNO (Domino Printing Sciences) for BSY. Both are on similar PEs of 14-and-a-bit, with similar yields, but BSY has better EPS forecasts. DNO has also had a rather good run for its money lately, so there's probably more mileage to be had in BSY over DNO. Kelpie Capital wrote a nice piece on BSY on 15-Oct-2011. I'm not expecting to make a ton on it - but the defensive portfolio has actually acquited itself rather well over the last year. I'll post more news when it reaches its first anniversary.

In the real world, I continue to hold DNO, but not BSY. DNO is still a good company, and I'm getting the impression that their new egg printing investment could do rather better than I expected. To summarise the egg printing business: "that's a lot of ink". I don't want to get all rampy on this one, though. If you're looking for some quick action, you're probably better off elsewhere. DNO is looking overbought at the moment.

I feel so dirty

So, how's my little paper experiment with short-term trading working out, then? Not so bad, as it happens. A little rundown ...

TSCO - Tesco - which I also hold in real life at 327p, is down a little bit at 321p, but I'm pretty confident on this one. If it's good enough for Buffett. Looks like patience is required. It still looks cheap on a historic basis,

IDH - Immunodiag - the company slumped after fears of competition on some of its tests. I banked  profits of about 18% on those over a period of a week. Too bad, because so far I left plenty of dough on the table.

CRE - Creston - the media company that warned on profits recently. Kudos to ExpectingValue for highlighting this share in the first place. It is one a PER of 3.4, PBV 0.32, PFCF 4.8. The number of shares has ballooned nearly sixfold in the last decade, and general consensus appears to be that the directors are "generously" compensated. I'm up over 5% since purchasing earlier this week.

RGM - Regency Mines - minnow miner on a PE of 3.7. The seem to have various virtuous bits-and-bobs to look forward to. Share price is now recovering from the doldrums at the end of the year. It has made a strong recovery since then, so maybe it's not an ideal share for short-term trading. 2012 forecasts are for an EPS of 0.70p, against a share price of 1.98p, which still seems plenty cheap. I'm down fractionally on this one so far, but I'll treat this as early days.

CRND - Central Rand Gold - junior gold miner which fell to about 0.2p in October 2011, since recovered to 1.08p. It has had all sorts of difficulties and intrigues, but seems to be sorting them out. Looks cheap compared to the resources it owns. I'm slightly down on this one so far. Maybe it is taking a breather after its recent runup.

IAE - Ithacca Energy - £480m North Sea oil producer. I've got resource stocks coming out the yin-yang. No doubt there are plenty more out there that are worthwhile that I don't know about. My apologies if I missed your favourite. Anyway, back on topic. IAE has had an amazing run up since mid-January on the back of a takeover approach. I'm up on this share, although it looks overbought (unsurprisingly) and is pulling back today. I'm still going with the theory that there should be a healthy takeover premium. Maybe a safer way to have played it is to hope that the bid doesn't go through, and sends the share price crashing. IAE seems to have net cash of over £100m, and earnings are set to skyrocket next year. It is much cheaper than its peers on an EV/Sales basis, although its PE is 13.

So, let's see how this stuff all works out. So far, so good. I'm actually quite encouraged by how things are going.