Interactive Investor

Shares for the future: 25 shares I think are good value right now

1st July 2022 15:07

by Richard Beddard from interactive investor

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Richard Beddard runs through how he builds his investment portfolios, his thought process and scoring mechanism. He also reveals his own trading rules and top stocks.

A crystal ball imaging shares for the future 600

Before I give you this month’s ranked list of shares from my Decision Engine, a not so brief reminder of what it is all about.

It is over a year since I wrote the first Share Sleuth and Decision Engine FAQ, the purpose of which was to answer questions I am genuinely asked.

This update is necessary because subsequent queries show I left a few things out, and because I have tweaked a few things.

We start with the Share Sleuth portfolio because it came into being before the Decision Engine, and because the Decision Engine is a servant of the portfolio.

What is Share Sleuth?

Share Sleuth is a model portfolio run by me, Richard Beddard, a private investor and freelance financial writer. No money is invested in it, although I account for stamp duty, fees and dividends so its performance is as accurate as I can make it.

The portfolio grew out of a column I used to write for Money Observer magazine. I added the first four shares on 9 September 2009 and when Money Observer ceased publication in 2020, Share Sleuth moved to interactive investor, where I continue to write a monthly update.

From the beginning, the aim of the portfolio has been to invest in mostly UK businesses at reasonable prices that can sustain profitability and grow indefinitely. Somewhere along the line I decided “indefinitely” meant for at least the following decade.

I have faith in the long-term potential of the shares I have researched and choose to keep the portfolio nearly fully invested, riding out stock market volatility.

At the time of writing this FAQ, the most recent Share Sleuth portfolio update was published in June 2022.

What is the Decision Engine?

The Decision Engine is a big book of spreadsheets each containing the financial history of one company and a ranked list of all of them (which you can see at the end of this article).

It includes all the shares in the Share Sleuth portfolio and shares that I am considering.

The list is ranked using scores assigned to each share so the most desirable long-term investments, the ones with the highest scores, are at the top of the list.

If my analysis is right, it shows us which shares are the best candidates for investment now.

The Decision Engine guides my trades in the Share Sleuth portfolio. The goal is to weight the portfolio so holdings in shares at the top of the list are bigger than holdings in the shares lower down.

As a rough rule of thumb, I think of shares that score seven or more out of 9 as good value, and shares that score 5 to 7 as fairly priced. Shares that score less than 5 are less likely to be good long-term investments at the current share price. They are still good business though.

We publish the full list of shares once a month in an article titled “Shares for the Future”. At the time of writing this FAQ is the latest version of that article and the latest Decision Engine Table is at the bottom of the page.

How do you score shares?

In addition to the monthly Share Sleuth and Decision Engine updates, most weeks interactive investor publishes an article in which I score a share.

Typically, I do this as soon as possible after the company has published its annual report because the annual report is the most comprehensive source of financial information.

Also, it means I can attend the subsequent Annual General Meeting (AGM) armed with well informed questions.

The shares are scored according to five criteria:

  1. Profitability: Does the business make good money?
  2. Risks: What could stop it growing profitably?
  3. Strategy: How does its strategy address the risks?
  4. Fairness: Will we all benefit?
  5. Price: Is the share price low relative to profit?

The first four criteria are scored from 0 to 2.

The fifth criterion, price, is scored from -2 to 1. Expensive looking shares are penalised by up to 2 points, but if the price is low relative to normalised profit the score gets a boost of one point.

The maximum score for any share is 9.

The first four criteria are judgments I make once a year, having read the annual report, watched presentations, and, sometimes, attended the AGM. They show how confident I am that the company will prosper over the long-term.

The fifth criterion, price, depends on a souped-up version of the price/earnings ratio. Potentially, it can change whenever the share price changes.

This article explains how the price score is calculated.

This article shows how I scored Marks Electrical two weeks ago.

How do you trade?

My fundamental trading rule is that I am only allowed to trade up to twice a month in the Share Sleuth portfolio, a “buy” and a “sell”. This stops me thinking about trading all of the time, when I must spend most of my time feeding the Decision Engine by researching and scoring shares.

The second trading rule is the minimum trade size, which is 2.5% of the portfolio’s total value. At the time of writing, Share Sleuth is worth £165,000, so the minimum trade size is £4,125.

The minimum trade size stops me fiddling around with small meaningless trades.

The third rule is that each holding has an ideal size, also expressed as a percentage of the total value of the portfolio. The ideal holding size is determined by this formula:

ideal holding size (% of total portfolio value) = score- (9-score)

It gives the following values:

Score

Ideal holding size

9

9%

8

7%

7

5%

6

3%

5

1%

If the size of the holding in the Share Sleuth portfolio deviates by more than the minimum trade size from the ideal holding size, the Decision Engine will flag it as a potential trade.

For example: if a share’s score is 7 and Share Sleuth does not hold any shares, the Decision Engine will tell me I can add at least 2.5% (the minimum trade size) and up to 5% (the ideal holding size).

If Share Sleuth holds 3% of the portfolio’s total value in a share with a score of 7, it will tell me not to add more shares (because 3% plus the minimum trade size of 2.5% is greater than the ideal holding size of 5%).

If Share Sleuth holds 8% of the portfolio’s total value in a share scoring 7, it will tell me I can reduce the holding by between 2.5% of the portfolio’s total value (the minimum trade size) and 3% (the difference between the ideal holding size of 5% and the actual size of the holding of 8%).

It is up to me whether I follow these rules. If Share Sleuth has spare cash or I can reduce or liquidate a holding and replace it with one that would clearly improve the portfolio, I usually do.

Can I use the Decision Engine to trade, or copy Share Sleuth trades?

My articles are for information only. We do not recommend you copy Share Sleuth or buy or sell the shares I rank in the Decision Engine, without first making sure they are suitable investments for you.

To explain why you must at least verify what I have written and consider your own financial situation, let me tell you a little about Share Sleuth’s history and how I invest my own money.

In aggregate the Share Sleuth portfolio has done well. I seeded it with £30,000 of fictitious money in 2009 and at the time of writing it would be worth £165,000, 450% more. But the aggregate hides many sins. It includes one share (Metalrax) that went bust while I held it. Others have lost the portfolio money.

Occasionally, the whole portfolio performs badly. In fact, this is one of those periods. Less than a year ago in August 2021, the portfolio was worth just over £215,000, which means it is down 23% from the all-time high.

The biggest decline to date, 37%, was from Share Sleuth’s pre-pandemic high on 7 Feb 2020, to its early pandemic trough, little over a month later on 19 March.

History, so far, shows that giving up on Share Sleuth when it performs poorly would have been a mistake, but you may not have felt that at the time. Moves like these are sickening even for me, and I am in the driving seat.

Although I own all of the shares in the Share Sleuth portfolio and consequently many of the shares in the Decision Engine, I also put my faith in fund managers.

I have two main reasons for diversifying this way: to invest in foreign companies (with a few exceptions, I do not have the resources to do that myself), and in case my approach turns out less well than I expect.

In other words, I think about my fallibility and, if you take what I write seriously, so should you.

Where can I find the latest company write-ups, Share Sleuth updates and Decision Engine tables?

Share Sleuth is published in the week of the first Tuesday of the month and the headline usually contains the prefix “Share Sleuth”.

The Decision Engine is published on the Friday before Share Sleuth, around the turn of the month and it is usually headlined “Shares for the future”.

These articles, and the articles in which I score shares, also published on Fridays, can be found on my interactive investor author page.

The Decision Engine on 30 June 2022

Now you know how I assembled it, here is this month’s Decision Engine table.

It has been an exciting month. I have removed two companies, perhaps temporarily. They are Portmeirion (LSE:PMP), the maker of tableware and scented candles, and Trifast (LSE:TRI), the manufacturer and distributor of fasteners (nuts, bolts, rivets and screws).

I replaced them with two companies that are racy for different reasons. Marks Electrical (LSE:MRK), an online retailer of domestic appliances, only listed on the stock market last November.

New York Stock Exchange listed Garmin (NYSE:GRMN), the maker of fitness watches and much more, is the first overseas company to squeeze into the Decision Engine.

In addition, I have re-scored Anpario (LSE:ANP), the natural animal feed additive manufacturer.

I believe all the companies in the Decision Engine are probably good long-term investments, but the best are to be found in the upper reaches of the table.

Click on the company names to see how I scored each share. If you are reading this article after July 2022 remember there will be more recent Decision Engine updates in the Shares for the Future articles on my author page.

0

Company

Description

Score

1

Howden Joinery

Supplies kitchens to small builders

9

2

Dewhurst

Manufactures pushbuttons and other components for lifts and ATMs

8

3

Cohort

Manufactures military technology, does research and consultancy

8

4

Anpario

Manufactures natural animal feed additives

8

5

Goodwin

Casts and machines steel. Processes minerals for casting jewellery, tyres

8

6

PZ Cussons

Manufactures personal care and beauty brands

8

7

Next

Retails clothes and homewares

8

8

RWS

Translates documents and localises software and content for businesses

7

9

4Imprint

Sells promotional materials like branded mugs and tee shirts direct

7

10

Games Workshop

Manufactures/retails Warhammer models, licenses stories/characters

7

11

Garmin

Manufactures sports watches and instrumentation

7

12

Porvair

Manufactures filters and filtration systems for fluids and molten metals

7

13

James Latham

Imports and distributes timber and timber products

7

14

Treatt

Sources, processes and develops flavours esp. for soft drinks

7

15

FW Thorpe

Makes light fittings for commercial and public buildings, roads, and tunnels

7

16

Marks Electrical

Online retailer of domestic appliances and TVs

7

17

D4t4*

Develops and integrates Customer Data Platforms

7

18

XP Power*

Manufactures power adapters for industrial and healthcare equipment

7

19

Renishaw

Whiz bang manufacturer of automated machine tools and robots

7

20

Victrex*

Manufactures PEEK, a tough, light and easy to manipulate polymer

7

21

Focusrite

Designs recording equipment, loudspeakers, and instruments for musicians

7

22

Churchill China

Manufactures tableware for restaurants and eateries

7

23

Judges Scientific

Acquires and operates small scientific instrument manufacturers

7

24

Solid State

Manuf's rugged computers, battery packs, radios. Distributes electronics

7

25

James Cropper

Manufactures specialist paper, packaging and high-tech materials

7

26

Bloomsbury Publishing

Publishes books and online resources for academics and professionals

6

27

Bunzl

Distributes essential everyday items consumed by organisations

6

28

Softcat

Sells hardware and software to businesses and the public sector

6

29

Hollywood Bowl

Operates tenpin bowling and indoor crazy golf centres

6

30

Tristel

Manufactures disinfectants for simple medical instruments and surfaces

6

31

Volex*

Manufactures connectivity components and power cord

6

32

Oxford Instruments

Manufacturer of scientific equipment for industry and academia

6

33

Advanced Medical Solutions

Manufactures surgical adhesives, sutures, fixation devices and dressings

6

34

Quartix

Supplies vehicle tracking systems to small fleets and insurers

6

35

James Halstead*

Manufactures vinyl flooring for commercial and public spaces

5

36

Hotel Chocolat

Chocolate maker and retailer

5

37

Tracsis

Supplies software and services to the transport industry

5

38

Jet2

Flies holidaymakers to Europe, sells package holidays

5

39

RM*

Supplies schools with equipment and IT, and exam boards with e-marking

5

40

Castings*

Casts and machines parts for vans and trucks, primarily

5

  • Scores and stats: Richard Beddard. Data: SharePad and annual reports
  • Shares marked with an asterisk* score less than 5 out of 6 for Profitability, Risks and Strategy. They are more speculative
  • Click on a share's name to see a breakdown of the score (scores may have changed due to movements in share price)

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.

Richard owns most of the shares in the Decision Engine.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

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