Shares to buy, hold and sell: Alistair Mundy

Published by Cherry Reynard on 28 February 2011.
Last updated on 02 March 2011

Buy, hold and sell dice

Alistair Mundy has run the £1.7 billion Investec Cautious Managed fund since 2000 and the £396 million UK Special Situations fund since 2002. He is head of the contrarian team at Investec Asset Management, which means he will often be scouting around in the most unloved areas of the market.

He seeks out companies trading at or below their long-term fair value. Over the long term, it has proved an extremely successful approach, with both his funds in the top quartile against their peer groups over five years.


"This is a 'dull but worthy' choice. Its share price has been declining for around 10 years. There are lots of stale buyers out there, who say they've heard the story on Glaxo so many times it's started to sound like Japan.

However, I would argue that just because it hasn't worked yet, doesn't mean it won't. After all, the share price has come down a long way.

Glaxo has that attractive combination of a good valuation, a low price-to-earnings ratio and a high yield, yet everyone else seems to be playing the sexier companies.

It's true that larger companies have generally disappointed over the past 10 years. Glaxo and AstraZeneca had high expectations but then struggled to get price rises through and had problems with generic drugs.

But if the news flow changes, it won't take much for the share price to move very quickly. There is also an element of luck - at some point Glaxo will get lucky, its research and development spend will pay off and its drugs will come right.

Recent weakness has forced Glaxo to run itself better, cutting costs and streamlining management. There are also plenty of other parts of the business that are doing well - Lucozade, for example, or its vaccines business.

The UK pension funds have been sellers for some time, but this drip-selling has to finish at some point. In general, I like it when people are selling - it means we can buy the company more easily."


"The 'holds' are really everything else in the portfolio, but Unilever is a classic example. At various points over the past 25 years, it has done its best to drive itself into the ground. It has been excessively bureaucratic, had lots of middle management, and been overly keen to please the stockmarket.

It was all very short-termist.

Then new management came in and it's been making the company better. It has been rolling out the brands to new countries and generally managing the company for the long term.

I'm not asking it to do anything too exciting, however. It's not really why I like the company. I just believe the assets - which are strong - will be worked harder.

I'm a natural contrarian and like to buy when others aren't interested. As such, I've been a bit concerned that people are interested in Unilever for its emerging markets exposure, but I think ultimately people have got more exciting emerging market plays.

I believe the new management team will bring the company back to normal profitability. Sales growth and margins should be higher. Our ideal buy is when we get a company that is both not making its normal level of profits and is trading well below its normal valuation. That way we get the double-whammy in the share price."


"This is a very high-profile bookmaker that has had considerable success in Ireland and holds a big market share. It's smaller in the UK, but has been gaining market share here as well.

It's a very good company and I bought it on the basis that it had the balance sheet to support its growth and was well ahead of its competitors in product development. The big players in the UK were more constrained and I thought Paddy Power could nip at their ankles.

So it proved, and the shares saw a good run. The group set up a successful joint venture in France and made an interesting acquisition in Australia. It's a great story. Certainly the bull arguments are much larger than the bear arguments.

But valuation is so important for us and the shares are now fully valued. The low-risk part of the story is over. Anyone playing from here on is playing for higher risks.

Valuation is our usual reason for selling out of a stock. Everyone says they will sell out when a stock hits fair value, the trouble is that they are prone to moving their assessment of fair value. We try to ensure that our assessment of fair value remains static, and that we're always asking what we're willing to pay for a certain level of profits."

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.

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