Beginners' Portfolio: Watchlist Update
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It's about a month since we last had a look at the companies on our watchlist, so it's about time we checked to see how they're going. I've also added a new company to the list, and there's a bit of news from the portfolio itself that we should look at.
But firstly, here's the current state of the watchlist:
Unilever is a company that I've always liked, as it's solid and dependable, and a decent defensive share during downturns -- it makes the kind of household essentials that people just don't cut back on. It's mainly a dividend share, though the price has put on around 20% since the start of June.
But that price rise is the reason I'm unlikely to add it to the portfolio, as it has taken the price-to-earnings (P/E) ratio -- based on 2012 estimates -- to 18.8, and that just makes it a bit too expensive for me. After that rise, I can see the price remaining fairly flat over the next year or two, so buying it now would be just for the dividend. And with 3.3% forecast, there are more attractive dividends out there. So for me, Unilever just isn't a buy right now, but we can keep watching it.
A better dividend
A dividend payer that I think is more attractive is United Utilities . Like the rest of the utilities companies, what we're looking at here is a pure cash-cow, dividend investment, suitable to be kept for decades. And that forecast yield of 4.9% does look tasty. However, having United Utilities in the watchlist is really a placeholder for utilities companies in general, and if we buy one we will need to consider the alternatives. SSE , for example, offers a forecast 5.8% dividend yield for the year to March 2013, rising to over 6% for the next two years. It's on a lower P/E than United, too, of around 12.6 compared to 17.6. But at the same time, United has double-digit earnings growth forecast, versus SSE's 0% for this year, rising to 3% next.
Even though the prices have risen over the past year, I'm really starting to think that a utility company has to be a buy for a long-term portfolio like ours, and one of them may well take up one of our last two slots.
I've added GKN to the list after taking a look at the company's strong share price growth of late (and thinking I wish I'd seen the potential earlier). The price is up around 20% since a positive update in October, expectations for the full year to December 2012 are strong, and analysts currently have 10% earnings growth tentatively penciled in for each of the next two years.
Even after the recent price surge, the shares are still only on a P/E of 10, and there are thrice-covered dividends forecast with a yield of over 3%. The engineering sector is on a bit of a recovery as well, so on first inspection, GKN is looking like a buy. Could we have a utility and an engineer making up our last two purchases? It's possible.
And some news
I wasn't happy to wake up on Thursday to the news that portfolio member Rio Tinto had warned of a $14 billion (£8.8 billion) writedown relating to its aluminum business and its coal operations in Mozambique, and that chief executive Tom Albanese had been given the boot. With dread, I awaited the market's opening.
But what happened was surprising. The price opened more than 4% down, but immediately started to recover, and ended the day just 19.5 pence (0.5%) down on 3,439 pence. And on Friday the price rose further, ending the week 1% up on 3,502 pence. This investment world really is a strange one.
Rio Tinto remains a strong buy for me.
Finally, a big part of the Beginner's Portfolio is based on a strategy of buying strong dividend-paying shares, and Neil Woodford is an acknowledged expert on it. The free Motley Fool report "8 Shares Held by Britain's Super Investor" takes a look at some of his major holdings, and I strongly recommend learning from successful investors as part of the Beginners' process. Click here to get your free copy, while it's still available.
The free report "10 Steps to Making a Million in the Market" is also one I'd urge beginners to have a read of, because it's inspirational and it really does make a convincing case for the great potential of long-term investing in quality companies.
The article Beginners' Portfolio: Watchlist Update originally appeared on Fool.com.Alan Oscroft has no position in any stocks mentioned. The Motley Fool recommends Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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