Shares to buy, hold and sell: John McClure

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.


"This is a manufacturer of parts for the international automotive market. Its two main clients are truckmaker Scania and carmaker Volvo. This means that it's exposed to the fast-growing markets of Russia, Eastern Europe and Brazil. Even US truck sales are showing a huge increase in sales volumes.

"Lots of people think that Castings is all to do with British truck sales, but this is not quite right.

"It has a market capitalisation of around £120 million. Part of our differentiation as an equity income manager is that we are willing to go into smaller companies. We only have around 4% of the fund in the FTSE 100. We find that there are plenty of opportunities within smaller companies.

"People have had this view that dividends are much safer with larger companies, but the problems with the banks, and then BP, destroyed that idea. Smaller companies dividends are important for the management team and as such, I believe that dividend investors are generally safer in these types of companies.

"As a case in point, over the past couple of years, there have been plenty of smaller companies that have raised their dividends.

"Castings also has a strong balance sheet, with £10 million in cash. This is a key criteria for us - we want companies that can maintain and grow their dividend.

"In Scania's latest set of results, it said one of its biggest problems was sourcing parts. It says that manufacturers can't get sufficient working capital to keep up with their production needs. Castings, which can keep up, is therefore well-placed.

"We also like companies with international earnings. We're very negative on the UK market and still think that with cuts to government spending and taxes rising, it's time to pull the reins in now."


"This is a tiny company, with a market share of just £10 million. But despite its small size, it has a yield of 5.3%. It makes executive search software - its proprietary Filefinder system is a database and search management system used by executive search firms and internal HR teams.

"Even though the company is small, it has 1,000 customers in 61 different countries.

"We own around 2% of the company's shares (we don't own more than 3% for risk management reasons).

"This is a stock we will hold for a long time while we wait for it to get picked up by other people. At the moment, it has a tight shareholder list, but will eventually come to the attention of others. It's growing its yield as well as its revenues, and is currently trading on around 13 times 2012 earnings; we think it will exceed these forecasts quite nicely.

"We don't have much in the technology sector in our income fund."


"We haven't sold much for a while, but we've recently sold our shares in RSM Tenon. This is an accountancy firm that covers audit, taxation and advisory, turnaround and corporate recovery, risk management, financial management, and specialist tax.

"We've sold it on the basis that it is too UK-centric. In its most recent statement, it said that it was uncertain on its outlook, given the state of the UK economy and its own market.

"It still has a high dividend yield at 4.6%, but the shares have fallen back by 42% over the past six months, compared with a rise of 3.4% in the FTSE all share.

"When we sell out of companies it's mostly based on a change in strategy. We prefer to take a 'buy and hold' approach, but we tend to sell out if there's a material change in strategy or any kind of shock. We don't have price targets - we're not great believers in them because we think that good stocks keep getting better and poor ones keep getting weaker.

"We think there's still decent value among dividend stocks. We're also reassured by the fact that companies have put dividends up quite quickly as earnings have improved, and we're expecting further dividend increases.

"Long before the BP crisis happened, we were concerned that three stocks produced a third of the income in the UK market. We have between 30 and 50 stocks, with a spread among them. If one goes awry, it doesn't hit us nearly as hard."

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