Three Beautiful Babies
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It’s not all bad news…There are some great companies out there…So don’t throw out the baby with the bathwater… Trepidation has taken the place of anticipation.
Every morning, at seven o’clock, I make myself a cup of tea and settle down in front of my PC to read all of the morning’s stock exchange announcements. This used to be a happy half hour.
I would read of all the progress being made by the UK’s many quoted companies. I would count up those increased dividends. I would purr at higher profits. I would digest the many confident statements of chairmen and chief executives.
It was the intellectual equivalent of three Weetabix, and sent me on my daily rounds with a sense of optimism, happy that the good ship of commerce was chugging its way purposefully through calm seas with my life savings on board.
Now though things are different.
I turn on the PC with a sense of foreboding. I put an extra lump of sugar in my tea to anaesthetize the pain of profit warnings and dividend cuts. And I watch my fortunes sink.
Yesterday though was different. I was prepared for the worst. A week-end spent reading about the wrecks of Fannie Mae (FNM) and Freddie Mac (FRE), of the collapsing housing market, of mounting job losses and credit card debts had steeled me for a miserable morning.
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And yet! Not one or two, but three companies reported the happiest of news. News that in different stock market conditions would have propelled their share prices upwards.These are companies that prove that there is life outside the wretched banking and consumer sectors. There are industries out there that are benefiting from the very trends that threaten recession.There are companies that are providing a service that is indispensable, whatever the economic climate. And there are companies that are providing such great products that they are displacing existing ones and become a commercial imperative.
Take Hamworthy (LON:HMY), for instance.
This has been one of the stars of the small cap sector over the last few years, growing its profits at an annual rate of 27%. It has a bright future too, thanks to its expertise in the pumps and systems that handle gas and water on board ships.
Over three quarters of its sales are related to the production and transportation of oil and gas, and it is the latter that really underpins its prospects. The volume of LNG carried by sea is expected to rise by 10% per year until 2015. So no wonder Hamworthy’s chairman reported strong order books and ‘robust long-term growth prospects’ at yesterday’s AGM.
And another…
‘Our core business continues to prosper’ was the phrase used by another chairman, this time David Evans of Immunodiagnostic Systems (IDH), as he reported a 23% rise in earnings per share and a 20% hike in the annual dividend.
Since starting out as a distributor of diagnostic products thirty years ago IDH is now a leader in the global In-Vitro Diagnostics industry.
It exports 70% of its products, which are medical diagnostic kits. It has particular expertise in the areas of calcium dysfunction and bone diseases, such as osteoporosis, osteomalacia and Paget’s disease, but its flagship is its kits for the determination of Vitamin D in human serum.
Vitamin D is an important marker in the control and regulation of the body’s calcium reserves and is increasingly being accepted as necessary for the prevention of diseases including breast cancer, prostate cancer, colon cancer, diabetes and heart disease.
Since coming onto AIM in 2004 IDS has grown in exemplary fashion both organically and through acquisition and analysts are forecasting a big jump in earnings this year.
And here’s another…
And the third company to raise my spirits and demonstrate that not everything in the garden is withering away is SDL.
Its shares jumped after Chairman and Chief Executive Mark Lancaster told the market that results for latest six months ‘will be significantly ahead of market expectations’.
Revenues in this period were 37% higher than in 2007, with two thirds of this related to organic growth. So here is a third company that the recession is by-passing, evidence that if the product is good enough it will always succeed.
SDL’s product answers the commercial imperative that multinational organizations must deliver consistent information around the world in a variety of languages. 90% of information that is produced by a global organization is relevant to an international audience and yet, according to SDL, only 10% is delivered in their language.
SDL provides the software and services that can tackle this problem, central to which is software that can automatically translate from one language to another.
The shares of each of these three companies rose yesterday.
Each is a specialist with a worldwide reputation for excellence. In their rush to abandon the stock market, investors must take care not to throw the baby out with the bathwater. These three beautiful babies should each grow into handsome adults in the years ahead.
Regards,
Tom Bulford
for The Penny Sleuth
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Tags: FNM, FRE, HMY, IDH, International, SDL, Tom BulfordAbout the Author
Editor of Red Hot Penny Shares, Tom Bulford worked as a fund manager in London and Hong Kong for more than 20 years. Responsible for £2bn of foreign clients' money, he also launched what became Argentina's largest mutual fund.
Now working from his home in Oxfordshire, Tom keeps subscribers up to date with his free small cap market news e-letter, The Penny Sleuth.