You undervalued share opinion

Credit-Crunched

Mine has to be Tesco, what other shares do you think are undervalued.

Falling dividends for me show a good time to invest, that is my investment strategy. Any other shares people think are undervalued and why?

Linton

Any company of the size and high profile of Tesco will have been analysed in great detail by experts in company accounts and the supermarket sector. The current price is the point where the number of people who want to buy equals the number of people who want to sell. So it's pretty safe to assume that the price is the best available estimate of the company's true value. It's difficult to see how you could get a better one.

Falling dividends are a symptom of a company in trouble. Company directors dont like to cut dividends as it upsets the shareholders who have the power to sack them. So buying Tesco is a punt on whether you think Tesco will recover. Will they? I dont know neither does anyone else.

It is normally a bad idea to cherry pick a small number of individual shares. If you want to go for "recovery" situations I suggest that you look for say 15+ different shares at say £2k/share. Then bearing in mind you cant lose more than 100% if an individual investment fails but could gain a lot more than that if it doesnt perhaps overall you will make a decent return.

An alternative is to go for funds with "recovery" or "special situations" in their names and let a fund manager cast his net. Prior to the past 5-10 years some such funds have performed extremely well, perhaps they will again.

Trentenders

Quidell would be an obvious choice for something to look at. Forward PE of something like 2-3, with no debt and and massively growing EPS. Cashflow is an issue though and the share has come under a heavy & sustained shorting attack.

Either the company does what is forecast, in which case both II's will buy in big and the shorters end up buying the borrowed shares back, or the company accounts are nonsence and someone might end up in jail for fiddling!

Quite a binary bet, but it's also trading a little above NAV, so I don't think there's much further that the share can fall without a total collapse.

Interesting share, but definitely one to do your own research on.

P.S. Agree above re: Tesco being heavily researched by teams of people. Whatever the price Tesco is, is the correct price for that point in time.

Thrugelmir

Trentenders wrote: »

Interesting share, but definitely one to do your own research on.

Isn't that the issue. Lack of transparency.

Mine is Thalassa. Small company offering a niche product. May take a while to come good.

As for Tesco's. The issue isn't the Company. More the sector that the bulk of profits are generated in. Supermarkets in general maybe in for a torrid few years.

Credit-Crunched

Linton wrote: »

Any company of the size and high profile of Tesco will have been analysed in great detail by experts in company accounts and the supermarket sector. The current price is the point where the number of people who want to buy equals the number of people who want to sell. So it's pretty safe to assume that the price is the best available estimate of the company's true value. It's difficult to see how you could get a better one.

Falling dividends are a symptom of a company in trouble. Company directors dont like to cut dividends as it upsets the shareholders who have the power to sack them. So buying Tesco is a punt on whether you think Tesco will recover. Will they? I dont know neither does anyone else.

It is normally a bad idea to cherry pick a small number of individual shares. If you want to go for "recovery" situations I suggest that you look for say 15+ different shares at say £2k/share. Then bearing in mind you cant lose more than 100% if an individual investment fails but could gain a lot more than that if it doesnt perhaps overall you will make a decent return.

An alternative is to go for funds with "recovery" or "special situations" in their names and let a fund manager cast his net. Prior to the past 5-10 years some such funds have performed extremely well, perhaps they will again.

I already ow a large range of funds, including the M&G r covery fund. With AIM 'oilies' to add some spice

I was just interested in people's views, I we this as a way to,increase my divi payment in the future, by buying when divi's are being cut. These are shares within my SIPP, so in essence the divi is more important than short to medium term capital gain.

bowlhead99

I agree with Linton. Falling dividends, or the expectation of falling dividends, relative to share price means that the company is relatively more expensive because the company is priced at a higher multiple of what it pays out, than it was before the divi cut. If the divi falls by 50% and the share price only falls by 48%, it should not be a "buy" on value grounds. It is more expensive per penny of dividend being paid out!

However, if the divi fell by 50% and the share price fell by 10-90% and you are confident that the dividend drop is a purely temporary dip and it will be back to normal soon then perhaps it is a buy on value grounds, because when dividend returns to normal levels the price will suddenly seem cheap and may rise back to its old level. The fact that Tesco hasn't stayed at its old level implies its old level is too high for the market view of its prospects and the current, lower, level is about right because the market doesn't just think the dividend fall is a temporary blip.

These are shares within my SIPP, so in essence the divi is more important than short to medium term capital gain.

That doesn't make a whole lot of sense. Many will have assets in their SIPPS that do not generate much in the way of dividends.

If I have £100k in my SIPP, I don't care whether it goes up by £10k by receiving dividends or by increasing capital. I am going to reinvest the dividend anyway, my concern is just to have £110k of assets. I can sell assets for cash whenever I like, if I want cash for a new investment within the SIPP. I'm not going to be able to cash in the SIPP pot and take the investments out of their wrapper until I'm 55+

Meanwhile, I don't care whether achieving the £110k position is because the share price of my 100,000 shares increased to £1.10, or the share price stayed at £1.00 and they paid me £10000 of dividends which I used to buy 10,000 more shares at £1.00. A return is a return, and as it's inside a tax wrapper, there is no difference from a tax perspective whether I receive dividends or capital gains.

So, why does the fact that you have chosen to wrap your investments in a SIPP, create a preference for dividend income over short or medium or long term capital gain?

ermine

Credit-Crunched wrote: »

Mine has to be Tesco, what other shares do you think are undervalued.

Sadly I am with Terry Smith on TSCO - and I own some of the darn things, seduced by the Sage of Omaha a while back. I did at least try to pay no more than him, and my loss is offset a bit by the dividend income received so far, though that will be greatly diminished going forward

But hey, you win some and you lose some. If you're going to go stockpicking then diversification is your friend, particularly with the HYP approach you seem to be taking. And it's kind of nice to know BRK feels the same pain

Thrugelmir

ermine wrote: »

Sadly I am with Terry Smith on TSCO - and I own some of the darn things, seduced by the Sage of Omaha a while back. I did at least try to pay no more than him, and my loss is offset a bit by the dividend income received so far, though that will be greatly diminished going forward

But hey, you win some and you lose some. If you're going to go stockpicking then diversification is your friend, particularly with the HYP approach you seem to be taking. And it's kind of nice to know BRK feels the same pain

They'll be a level at which the shares will represent value again. So buying a further tranche then will start to reduce the average price paid down. It's an approach I use when building a new holding in a particular Company. Learnt years ago never to jump in and buy in a single purchase. If the core fundamentals of a Company are sound then I ignore the noise of the market. As investors have any number of reasons for trading shares outside of reporting periods.

planteria

i don't agree with some of the logic re. Tesco. like all FTSE100 companies, they are researched thoroughly on an ongoing basis....but a lot of money is made investing in FTSE100 companies on dips. and the market drags good companies down, and sectors Certainly drag good companies down.
fwiw i think grocery could fall further

IronWolf

Linton wrote: »

Any company of the size and high profile of Tesco will have been analysed in great detail by experts in company accounts and the supermarket sector. The current price is the point where the number of people who want to buy equals the number of people who want to sell. So it's pretty safe to assume that the price is the best available estimate of the company's true value. It's difficult to see how you could get a better one.

Even big companies aren't immune to mis-pricing.

I bought Apple 14 months ago for the equivalent of $64 a share, now its $101. Did the value of Apple really increase by 60% or where people wrong before? Or wrong now?

My best value share is Goldplat.

Biggles

Credit-Crunched wrote: »

Falling dividends for me show a good time to invest, that is my investment strategy.

As has been pointed out, a falling dividend shows a lack of confidence by the directors in their future profits.

I'd never buy a share based on dividends, I'm only interested in growth shares, but when I already hold a share it does give me further confidence if I see the directors increasing the dividend.