This has been a profitable month and, if Twitter is any guide, I'm not the only one. Quite a few of my larger holdings have benefited from decent updates/results and I added a few starter positions in shares that I've been monitoring for a while. Whether or not it's the wrong time to reduce my cash buffer I don't know (on the basis that the next crash will throw up some bargains) but trying to time the market isn't my strategy. Instead all I ever try to do is identify a few promising companies, take an initial stake and then either reduce or increase my position depending on news-flow. This approach seems to work for me, unlike many other strategies, so I might as well stick with it!
Purchases
RM Bought 238p - July 18
My primary screens, which filter against quality, momentum and value, have been flagging up RM as a high conviction purchase for six months. There's no doubt that the company has made solid progress over the past 5 years with profits more or less doubling, without any P/E ratio inflation, and ROCE sitting at over 20% as margins have remained stable. Still I dithered about making a purchase on the grounds that selling into the educational market is difficult at the best of times. The tipping point came this week when interim results showed all three divisions to be making good progress and an indication that the board are confident of at least meeting current expectations. Given that the forward P/E is just 10, with a yield above 3%, I think that the group is relatively undervalued with scope for a positive earnings surprise in H2.
Bodycote Bought 975p - July 18
My position with Bodycote was pretty similar to that for RM in that all of my filters suggested a purchase and yet I was reluctant to pull the trigger. In this case variable earnings over the past few years suggested to me that the business wasn't a model of stability and this is always a concern. On the other hand earnings bounced back last year, up by 33%, and forecasts suggest a continuation of this trend over the next two years although at a lower level of growth. So it's reasonable to expect margins and ROCE to stay at a decent level, >15%, with strong cash generation putting the group in a net cash…
