It’s now been six weeks since I added a stock (Alliance Pharma) to the SIF portfolio. This is partly because I was away for two weeks. And a further two weeks were occupied by my month-end reviews.
But through all of this I haven’t seen any stocks in my screening results that would have been suitable additions to the portfolio.
The main problem is that the only qualifying stocks which aren’t already in the portfolio overlap too much with existing stocks. And the rest of the market is simply too expensive or slow growing to pass my screening tests.
I’m not concerned by this, as I do have a rule for this situation. When this happened last year, I developed a Jim Slater-inspired ‘relaxed’ version of my standard stock screen. This lowers the threshold for two key criteria in the SIF screen:
Earnings yield is reduced from 8pc to 6>pc
Rolling PEG ratio is increased from 1.2 to 1.3
The purpose of this is to allow me to add shares to the portfolio during buoyant market conditions. I’ll accept a more demanding valuation, while not diluting any of my quality or momentum-related criteria.
My hope is that this will balance the risk of paying too much with the risk of missing out on bull market gains. One other advantage is that by following this rule, I’m prevented from trying to call the top of the market and shift into cash. That’s not something that would be acceptable in my rules-based scenario, even though it may soon become tempting!
I’m allowed to consider stocks from the relaxed screen after I’ve been unable to add stocks from the regular screen for four consecutive weeks. As we’re now in this situation, I’ve turned to my relaxed screen this week.
Slim pickings - one choice
There aren’t many suitable choices. But one company that I am prepared to consider is technology firm Vitec. You may not have heard of this £500m company, but if you’re a keen photographer or work in broadcasting then there’s a good chance you’ve used its products.
Vitec owns a group of brands producing a wide range of audio-visual equipment and accessories.
Example brands include Manfrotto, Gitzo, Lowepro, Anton/Bauer, Autocue, Paralinx, Camera Corps and Colorama. Products include robotic camera systems, mobile power…
