Shares to buy, hold and sell: Bill Mott
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
"The stocks in my portfolio tend to be in economically insensitive areas. In keeping with this, I hold an American drug company called Merck - a very large company, equivalent to GlaxoSmithKline in the UK. I think drug stocks in general are very attractively priced and it could be the tobacco story of tomorrow.
"I like the pharmaceutical sector generally and I particularly like Merck because of a drug it has in clinical trials. The drug is aimed at increasing good cholesterol. Most drugs of this type only lower bad cholesterol, but there are lots of people with low good cholesterol rather than high bad cholesterol, and there are limited pharmaceutical options to treat them.
"The drug could be very significant for Merck. Early results have been positive and this is a good driver for the share price.
"The industry dynamics are changing, and in the meantime these stocks look very cheap. In the UK, there are only GlaxoSmithKline and AstraZeneca to choose from in the pharmaceutical sector and I am overweight in both of those.
"I don't like to take too much stock-specific risk, so I will only go 3% above the index weighting. As such, I can't achieve the position I'd like in pharmaceuticals just by using UK stocks, so I have diversified overseas."
HOLD: BRITISH AMERICAN TOBACCO
"Every time I buy a stock, I assume that I am going to keep it forever. British American Tobacco is a stock that can transcend any weakness in the wider economic landscape. It has a stable product and it meets many of my selection criteria: it has high barriers to entry and predictable cash flows, it can grow its dividend and it has been taking costs out of the business.
"It also has exposure to the higher-growth regions of the world and this means the group is less dependent on the developed world. This is the kind of geographic profile that I like.
"If I have a good run of performance in my BAT holding, I take some profits. But, if it has a poor run, I top up my holding, so my weighting in the stock changes depending on the market moves. However, I have held it for a long time and it is unlikely that I would ever sell out completely.
"I believe this type of defensive stock should do well in the current climate. A lot of the global growth that has occurred since the credit crunch has been artificially stimulated by central bank actions. There have been massive fiscal and monetary boosts and the public sector has ballooned.
"Over the next period, when this stimulus is withdrawn, defensive stocks should come into their own."
SELL: DAIRY CREST
"Dairy Crest supplies milk to people's doorsteps and to supermarkets. It also produces Cathedral City cheese and other dairy goods. It has long been a favoured holding because of its defensive qualities.
"However, as a relatively small player only operating in the UK and France, it is being hit hard by rising raw materials prices. And as a supplier to supermarkets, its margins are squeezed.
"But it has plenty of good characteristics. It is well-managed and I may well revisit it in the future. However, the industry dynamics are tricky. I held it for strategic top-down reasons and I sold it for more stock-specific reasons.
"In general, I will sell a stock for any one of three reasons. One is a change in the economic environment. Certain climates favour defensive stocks, for example.
"It may also be that a share does so well that there is no longer any discount in the price. Finally, it may be stock-specific. The dynamics of a company may no longer be attractive due to internal or external influences. But I am not usually swayed by the occasional hiccup."
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.