SIF November Review: +44% From Morgan Sindall, Sirius And Air Partner

29th Nov '17 by Roland Head

4 comments 5612 reads

Market conditions seem to be changing. The number of stocks qualifying for my Stock in Focus screen has fallen steadily recently and is now down to just 14. Several of these are already in the portfolio, or would be ruled out due to duplication issues.

If this continues, then the SIF portfolio may move steadily into cash until more attractive opportunities emerge. I’m not overly concerned about this, as I don’t believe you need to be fully invested all the time. Indeed, I think that’s one of the advantages private investors have over most fund managers, who have little choice but to deploy cash when it’s made available to them.

In any case, I’m not looking to add any new stocks to the portfolio this week. It’s the end of another month, which means it’s time to take a look at stocks which have been in the SIF portfolio for nine months or more.

Do they still qualify for my screen, or is it time to jettison these shares and free up some virtual cash for new opportunities?

The situation is quite interesting. But before I get started, I’d like to flag up my article from last week. I’ve launched a new international version of the SIF portfolio, which uses a modified version of my screen to select stocks from all the countries covered by Stockopedia.

I’ll be including monthly updates to the International SIF from now on, so I’d be interested to hear more about your experiences investing overseas. We had some interesting comments last week regarding the impact of dealing costs and foreign exchange.

A 44% total return

Here’s a summary of the three stocks up for review this month, and their performance to date:

Construction and regeneration group Morgan Sindall
Germany-focused business park operator Sirius Real Estate
Last month’s holdover stock, aviation services group Air Partner

A quick look at the Fantasy Fund page suggests these stocks have delivered a cracking performance for the portfolio, especially Morgan Sindall:

Including dividends, the average total return from these three holdings has been 44%.

Notwithstanding this, all of these stocks will have to be sold this week unless they continue to qualify for the Stock in Focus screen.

Morgan Sindall

Construction and services group Morgan Sindall has proved to…

Unlock with Email

Unlock with Google

Already have an account?
Login here

PhilHofGrowYourDough

29th Nov '17

Re: Morgan Sindall (LON:MGNS) ... have you considered the Risk Adjusted PEG? (See https://www.stockopedia.com/content/the-peg-ratio-dismantled-or-how-to-buy-your-growth-stocks-on-the-cheap-62191/)

This allows me to hold Superstock/HighFlyers whist still appreciating in price even if they appear to be no longer exhibiting very cheap growth. It also means I select less volatile stocks.

The Risk Adjusted PEG of Morgan Sindall (LON:MGNS) is 0.37

Note: You can't see PEGR on a StockReport but you can add it to portfolio tables and you can screen for it.

Roland Head

Hi Phil,

Thanks for this interesting suggestion. I have to admit I've not come across the risk adjusted PEG before.

For anyone who isn't familiar, the link in Phil's comment is worth a read, but in short the risk adjusted PEG uses ß (beta), a measure of a share's volatility, to favour less volatile stocks.

Personally, I don't mind a volatile share price if I'm comfortable with the progress of the underlying business. But I understand that it spooks some investors. And there's also some evidence to suggest that low volatility stocks can deliver comparable returns with less downside risk than more volatile stocks.

Another potential downside of volatility is that if you're buying and selling on a schedule, as happens with the SIF portfolio, you can be forced to buy and sell at less attractive prices than might otherwise be available.

So reducing volatility in the portfolio could be attractive.

Should I change the rules? I haven't had a chance to read the Javier Estrada paper linked to in Ed's article on the PEG ratios. But my instinctive concern with this approach would be that long periods of low volatility, such as we've seen in recent years, can provide a false sense of security. For low margin, cyclical stocks such as Morgan Sindall (LON:MGNS), the financial weather can change rapidly.

For example, if Morgan Sindall experienced a shortfall of expected revenue of 1% (£28m on £2.8bn), its 2% operating margin means that operating profit could fall by up to 50%. This is an extreme example, but as we've seen with Serco (LON:SRP), Capita (LON:CPI), G4S (LON:GFS), Carillion (LON:CLLN), Interserve (LON:IRV) et al, such meltdowns do happen.

I'm going to investigate how PEGR would affect my stock choices in a little more depth. I'm also going to look at PEGY, which by including dividend yield as well as eps growth, would broaden the range of stocks available in my screen.

Thanks again for flagging this up. Definitely worth some further research.

Regards,

Roland

coniston

Well done Roland on them gains ,enjoy your thought process when analyzing stocks.Is there any rules which prevent you from purchasing a stock which you have recently sold ie MGR ,they seem to pass all your criteria.

Hi Coniston,

I don't have any rules against repurchasing stocks, and have done so once or twice. Miton (LON:MGR) is a stock that's appeared in the screen from time to time, although it doesn't seem to qualify at the moment.

Regards, Roland

SIF November review: +44% from Morgan Sindall, Sirius and Air Partner

A 44% total return

Morgan Sindall

Unlock the rest of this article with a 14 day trial

About the Author

Roland Head

4 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...