I’ve not yet bought the same stock twice for the SIF portfolio, but in this rules-based scenario there’s no reason not to. A number of stocks have popped in and out of my stock screen over the last year, and it’s just happened again.
FTSE 100 defence group BAE Systems joined the portfolio in June 2016. It was sold for a total return of 23% in December. Since then, BAE has issued a decent set of results and the stock has seen some mixed price action. The overall effect is that the shares now qualify for the SIF screen once more.
This week I’m going to consider whether to add BAE back into the portfolio. I’ll also take a look at a couple of more highly-ranked stocks I’ve rejected and discuss the thorny issue of pension deficits, on which my view is changing.
The also rans
My interest in BAE Systems is partly down to the defensive and diversification benefits I hope it might bring to the portfolio. But my screen results are always sorted by StockRank and BAE’s score of 78 means that it’s near the bottom.
Many of the higher-ranked stocks are already in the portfolio, or are duplicates. For example, recently-floated brick makers Forterra and Ibstock don’t appeal when I already have housebuilder Redrow in the portfolio.
I was tempted by gold miner Acacia Mining, which looks affordable and well financed. However, Acacia operates in Tanzania, where there is currently a ban in place on exports of gold/copper concentrate. This means that production accounting for 30% of the group’s revenue (c.$1m/day) is being stockpiled with no apparent route to sale. This ongoing problem puts the stock into the special situation category for me, so it’s not an investment for the SIF Portfolio.
Pension problems
Before I look at the latest Stockopedia figures for BAE, I’m going to approach the subject of pension deficits. Previously, I’ve tended to assume that rising interest rates and financial engineering would prevent them from becoming critical issues for most firms.
That’s why I was happy to add Hogg Robinson and Norcros to the portfolio last year. Both companies have big pension deficits, but excluding these they look like classic value buys. However, these stocks were among
