Shares to buy, hold and sell: Tim Steer
Tim Steer is the manager of the £336 million Artemis UK Growth fund. He moved to Artemis in July 2009 from New Star, where he ran the New Star UK Alpha fund.
He started his career as an accountant before becoming an award-winning small and mid cap analyst. He is known for his forensic approach to analysing companies. Over one year, the Artemis UK Growth fund is up 20.4%, compared with a rise of 14.2% in the FTSE All-Share index.
"We have a long-term holding in Weir and have been buying it for some time. The group is based in Scotland, but operates all around the world.
"One of the things that I think moves stock prices is earnings revisions, and if a company keeps being upgraded, the shares will keep moving up. Weir Group has been upgraded quite a lot, and has seen a significant re-rating in its share price, but I think it may still have further to climb.
"It's the largest global manufacturer for certain types of mining, nuclear and oil and gas equipment. In the Klondike gold rush, it wasn't the gold miners who made the most money, it was those who sold the spades.
"I could buy mining companies, but this seems like a better way to play the commodities story. It's about buying the props that enable the growth.
"The company has just entered the FTSE, which has given its share price a further boost. It has a very sensible and conservative management. It also makes good money out of the repair and maintenance of its equipment, and has significant activities in growth regions such as South Africa and Australia.
"The shares have doubled over the past 12 months and we believe they should still have further to go."
"Babcock generates around 65% to 75% from defence outsourcing. We have now had the strategic review from the new government and the market expects earnings to suffer as a result, so the shares have been beaten up a bit.
"The group maintains all the British Navy's ships, plus its nuclear submarines. It also does a lot of the training for the armed forces.
"I believe it will get more work in spite of the defence cutbacks, simply because it can provide these services more efficiently than the armed services themselves. It does blue-collar type work, focused on the front line.
"Babcock is now really quite cheap. It trades on just nine times earnings before deriving any benefit from its recent acquisition of VT Group, but hopes to deliver some £50 million in cost savings by bringing the two businesses together.
"The two companies fit together very nicely - in fact, so much so that a number of years ago VT tried to buy Babcock. Serco, which is a similar business, was trading on about twice Babcock's valuation until its recent cost-cutting controversy, and is still at a substantial premium.
"For the nuclear fleet, the group employs more nuclear engineers than anyone in the country. It's building the carriers and also providing the accompanying training. There's no company that can challenge Babcock's pre-eminence in the market. The recent dip provides a buying opportunity and this is an investment to tuck away for the long term."
"In my view, Autonomy is now far too expensive. It's the biggest software stock in the UK and as such it has always tended to trade on quite high valuations, but is currently on 25 times earnings. There's a lot of expectation there.
"More importantly, I also believe its earnings are coming under pressure and may be revised downwards. Its cash flow conversion is not great and it has been extremely acquisitive. It raised £500 million for an acquisition spree in February 2010 and has high hopes for one of its pending acquisitions, but I'm not sure it will deliver as the company expects.
"What often happens with software companies, unless they happen to be Microsoft, is that they run out of ideas, and someone smaller and more nimble overtakes them. I believe this is happening with Autonomy - the business is losing momentum. Profit margins are relatively high and any slowdown in sales will impact on earnings.
"I also think the group's accounting is a bit aggressive. There are some questions about the capitalisation of research and development on the balance sheet."
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.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.