Picking Season
Round about this time of year the newspaper pundits pick out their shares of the year. I never think very highly of their picks, so I will put my self on the line and pick out 10 shares to see how I do against them.
Software companies rose by 49% last year, compared to the market which rose by 13%, but I think that there is still a long way to go for them if they are to get back to the peaks that they reached in the past.
I think that in 3 years time that the price of software companies now will look dirt cheap.
My Make a Million in Five Years from 100K portfolio, which I started in April, is up more than 100%. It is stuffed full of technology shares and I see no reason at all to change that.
I managed to pretty much predict the bottom of the market and got in 3 weeks after the bottom was reached in March.
The old saying is that you never get in at the bottom and you never get out at the top. As longs as you make a profit along the way that is the main thing.
Now for my Ten Shares for the Year’¦..
1. LogicaCMG – 259p
Not including Sage, who are in the ERP market, this is Britain‘s biggest software house. They have managed to pick up some Government contracts recently. Patricia Hewitt has said that the Government should take into account the current state of the UK market when they are awarding contracts instead of just value for money.
Although the Treasury poured cold water on the idea, there is some evidence that they have listened to it.
If they do, and there are a lot of Government tenders out at the moment, then LogicaCMG stand to gain.
The shares have shaded a bit recently because of an OK but nor great market statement recently, but that gives me an opportunity to buy a good blue chip tech stock a bit more cheaply.
2. Spring Group – 115.5p
I‘m really fond of these. They have come through the downturn in great shape for the future. Unlike some other agencies they didn‘t have deferred payments to make on companies that they bought at the top of the market.
Even better for them, while other agencies are saddled with debt, they have a very strong balance sheet. In fact they had £51m in cash.
Their stated aim last year was to become Britain‘s biggest IT staffing company. They achieved that in one fell swoop when the bought Best International at a real knockdown price.
They still have £47m of their cash left and they have said that they will make good use of that strong balance sheet for further purchases. They said that they would wait until they had assimilated Best International before they went on the hunt again – well Best International is now fully assimilated.
They say that when an upturn comes you should buy those shares that did well in the downturn. If they can succeed then, they will certainly do even better in any recovery.
3. Xansa – 84.5p
Xansa‘s shares have shaded a bit recently because of a profits warning coming because some major contracts have come to an end.
They are one of those software companies with an offshore facility as they bought Indian company IIS a few years ago.
They stated recently that they are going to concentrate in the future in building software in India and selling into their core market the UK, which has 95% of their sales anyway.
Whatever one might think of offshore outsourcing it appears to be the flavour of the year, so they are not likely to go wrong doing this.
4. Parity – 10.75p
Parity were once one of the UK‘s largest agencies by market value. Currently they stand at less than 5% of their peak price. They do have large debts but they erased some of them by a rights issue.
I am buying this one as a recovery stock. They are unlikely to go under and if the IT jobs market really picks up then they might really fly.
5. Lorien – 86p
Lorien are another agency who have prospered during the downturn. They even managed to increase profits. They took action at the right time to decrease costs. It is only in the last year, when they were not able to reduce costs more, that they have been hit.
Now that the jobs market is recovering I would expect Lorien to recover rapidly from quite low levels.
6. Intec – 60p
This company makes telecoms software. What I like about them is that they were increasing profits during the downturn. What I liked about them even more is that they surprised market analysts by how much they broke their profits predictions.
They went up a little after that, but if they perform like that during the downturn, how will they perform during the coming upturn?
7. Retail Decisions – 13.75p
This company are involved in Fraud Prevention Software – with or without cards.
I used to work for the boss of this company and he was one of the best bosses that I ever worked for. However, including Retail Decisions isn‘t based on friendship. It is based on my belief that he can continue to grow the company.
It is also one of those shares that flew during the last boom, up as far as 388p at the peak. Therefore as one of the companies punished the most I think that they can rise faster than the market and that is what you want.
Also, the directors will be hungry enough as their share options won‘t kick in till round about the 30p mark.
8. Marlborough Stirling – 44.25p
What I like about this company is that just after their results, ten directors immediately bought sizeable amounts of their own company‘s shares the next day. That was when the shares were about 28p I think.
They have risen since then but I think and hope that they have further to go.
9. London Bridge Software – 53.5p
Again this is one of those software companies who soared during the last boom and so were punished severely in the crash. It is a good well-run company though. The majority shareholder was an ordinary programmer who struck it rich with Debt Management software for which the major banks are their main customers.
They have managed to pull off a few contracts recently and I would hope and expect that they will outperform the rest of the Stock Market.
10. The Innovation Group – 31p
They sell software which helps insurance companies to improve their profits performance. That sounds like the kind of software that most insurance companies would like to have.
The announced a new major contract on Friday which pushed their share price up by 3.5p. I would expect that there is more to come.
Monitoring
I will have a look throughout the year to see how the portfolio is doing.
I will just record here that the FTSE-100 currently stands at 4510.2.
I‘m fairly confident that I‘ll be able to thrash those mostly useless tipsters in the national newspapers.
As Jim Slater used to say, if they were any good, what were they doing working for newspapers.
