Mirror, mirror
Posted on October 15, 2008 by Richard Beddard
Filed Under Companies |
Investors are groping around for the market’s bottom. We won’t know if they’re right until it’s a lot higher but that’s not a good reason for turning our backs on companies. In fact, investors should be scrutinising them closely. That’s why I’m working through a list of potential recovery stocks and why, though I sympathise with a comment left by Deborah*1, a financial blogger, saying…
Good luck Richard. I personally think there is still too much uncertainty for my tastes…
…I want to clarify. It may, or may not be time to buy company shares, but it’s a good time to be working out which ones to buy, and under what circumstances you’d buy them.
Uncertainty creates opportunity precisely because people lose interest in stocks, driving prices down.
Having put aside Land of Leather for a year, next on my list is Trinity Mirror (TNI). It’s a big company in a big industry and there is a huge amount about it that I don’t know. But this much is obvious, Trinity Mirror has problems:
- The Daily Mirror is less popular than its rival The Sun,
- The economy appears to be tottering into recession, which is reducing advertising sales at Trinity Mirror’s national and regional titles, and…
- People doubt that newspapers, collections of news and advertising printed on paper, have much of a future at all thanks to the Internet, and even plastic.
We don’t know whether Trinity Mirror will turn itself around by cutting costs and embracing multimedia but judging by the figures, it could be a ‘buy’. Its F_Score, a measure of financial strength is a magnificent eight (out of nine), and its long-term price-earnings ratio is even tinier than two. In other words, we can buy shares in a profitable, financially sound company for less than two times a typical year’s annual profits.
Of course, investors anticipate much lower profits in future, which is why the share price has fallen over 90% from its high in 2005. But gloomy predictions are good news for investors seeking to buy at low prices. Gloom may be right in the short-term, but companies usually recover.
Since I use the average of nine years of earnings to calculate the PE it’s a more sober estimate of profits that incorporates good years and bad, and Trinity Mirror still looks cheap.
There’s good reason to be cautious, though. These feverish days a week is a long-time in investing. Seven months is an eternity. In February, Trinity Mirror was recovering after two years of trouble. When it published its interims in July, trouble had returned with a vengeance.
So relying on Trinity Mirror’s accounts from 2007 to determine its financial strength now would be reckless. Trinity Mirror publishes its results for 2008 in February 2009, and it will probably be less profitable, and more indebted than in was in 2007. To judge whether it’s a good investment we’ll have to wait, at least, until then.
If you’re a value investor, patience is a virtue, but negligence – ignoring stocks altogether – isn’t.
Footnotes:
- She’s very good: See what I mean?
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