First of all, I want to start with an Apology for the lack of new Blogs on the Website lately - so Sorry for that. However, I am in Summer Mode 100% now and I just don’t have the time - better things to do !!. Please don’t hate me for this - I will keep updating all my Trades as they happen and if you follow me on Twitter then you will see I am still very much about. If you are not on Twitter - go to either of my Homepages and you will see the Twitter Feed which hopefully you may find has some good stuff in it.
Even though I am in ‘Lazy Days of Summer’ Setting, feel free to Email me or Direct Message (DM) on Tweetster or whatever - if you have a question about pretty much anything then maybe I can help, and if not, probably someone on Tweeter can.
Income Portfolio Considerations
An essential feature of any Stock for my Income Portfolio is that it ‘fits’ with the other Stocks. It is a very small Portfolio with just 12 Stocks (and arguably not enough - I might up this to 15 over time - please see my recent Blog on ‘How many Stocks should an Investor Hold?’), and it is vital that I get a mix of Sectors and ‘types’ of Stocks where I can. Most are obviously boring Divvy Payers but I do have a couple that are more racy with growth like IGG and BOK. I also expect TEP to perk up over time and get back on its growth tack - but may take a while.
BA. must be a ‘Defensive’ Share because it is in the ‘Defence’ Industry right? Ok, maybe not……….
Interestingly, I realised that I have a huge hole in all my Portfolios by having no Exposure whatsoever to the Defence Industry. This was probably a good move in recent years with all the Government Spending Cuts both in the UK and the US, but it certainly seems like good timing to be buying into the Sector now. So not only does it bring a bit more Diversity into my Income Portfolio, it also means that I have some exposure (albeit very small at the moment) in my wider Portfolio of Stocks.
My intention with the Income Portfolio is to have Stocks that produce a yield near to 5% and, more importantly, that the Divvys are likely to rise over time - this brings in some Inflation Protection and should drive the Share Prices up as well - so I also capture some Capital Growth. BA. seems to fit this need as I will show below in the ‘Valuation’ bit.
For more details on my Income Portfolio (and the 12 Constituents), please see the ‘Trades/Portfolios’ page of this Website.
Extremely Short Overview
In essence, BA. is a Defence Supplier doing all sorts of stuff like Tanks, Fighter Planes, Guns, Big Guns, Little Guns, Armoured Cars, Boats, Nuclear Subs, etc. Pretty much anything you can think of for Humans to kill other Humans. They operate around the Globe and in recent years moved heavily into the US with a big Acquisition and they are doing a lot in Cyber Security these days, which is clearly a growth area.
You can see BA. Website here:
God it sounds a nasty business. Many people will struggle with the Ethics of this Company and I can completely understand that. For me personally, I take the view that ‘Defence’ is an essential part of a Civilised and properly functioning Democracy and anyone who thinks that the UK could run without Weapons is rather naïve (ah, you voted Green, I see). I would like my Government to protect me and my Family and Mates from the many awful Scum that inhabit this Planet and BA. helps supply the extremely sophisticated Weapons to enable them to do that.
Obviously, the big Ethical problems arise when Weapons are used for Attacking purposes (obviously recent Actions by US and UK Governments are very questionable around this) and there does seem to be a lot of Bribery and Corruption around the Industry - which of course is a Major Risk for BA. that Investors need to weigh up. It also needs to be balanced with the reality that many Jobs depend on BA. - this complicates the Ethics.
I may sound like a total git but I am not going to get too hung up on the Ethics - I need to make money and that is really what this Game is about. I am not convinced that ‘Ethical Investing’ is firstly possible (because every Company seems to have questionable aspects) and secondly because such an Approach seems to be poor at making Money.
The bottom line is that each Investor has to make their own Decisions with regard to Ethical Dilemmas.
- Pays a big Divvy near 5% and reasonable p/e Valuation.
- I think Defence Cuts are coming to an end and actually Western (and other) Countries will start spending more on Defence. This is to counter the Terrorism problem in the Middle East and it’s worth noting that on the News today the UK Government is talking about Air Strikes in Syria. It was also reported that the Labour Party is moving in this direction also. The appalling Tunisia Hotel attack has moved the Goalposts.
- Sadly, this will never be a Peaceful World - Human Nature is just wired this way. We love killing one another almost more than any other species.
- BA. is moving heavily into Cyber Security and such online threats - this is bit growth area.
- There may even be an outside chance of a Takeover or similar M&A activity - probably a Long Shot and people should never invest in a Company because of a Takeover as the sole reason.
- Chart looks like it’s a decent time to get cash in.
- With Greece silliness, it could drop more. However, if this was to happen, I would probably just do the ‘Average Down’ thing which of course everyone says is a bad idea……….
- Ethics - a ‘Black Swan’ Corruption Scandal could spank the Shares hard - it has done in the past.
- Risk that Scottish Nationalism will impact the Nuclear Subs in UK and it is possible still that the Trident replacement may get cancelled.
- As ever with a huge FTSE100 Business, it is utterly impossible to understand their Accounts (and anyone who thinks they can is probably wasting their time) - as a result, Accounting problems could emerge like with Tesco etc., however, this is a Risk for all Big Companies (and most Smaller ones also) and Investors have to live with it.
- If Government Finances get in a mess again, there could be more Defence Cuts. However, I suspect this is unlikely as Global Events will make this not a tenable situation.
- Peace suddenly breaks out all over the World and weapons never needed ever again.
As you will have figured by now on reading this Blog, I am interested in the Divvy Yield here. So let’s kick off with that. If you look at the ScreenShot below (as usual, all ShareScope Screengrabs in this Blog are exactly as per the situation that confronted me last night and upon which I made my Decision to Buy - I always avoid snap-judgement Trading Decisions intraday when the Markets can influence my Emotional thinking ability), you should see in the Top Right Hand Corner that the Forecast Dividend for 2015 (this year) is 20.987p per Share. At my Buy Price of 453.6p, this is a Dividend Yield of 4.6%.
For Next Year (2016), the Divvy should be 21.537p per Share, so this is a Divvy Yield of 4.74% on my 453.6p Buy Price.
I won’t dwell on the P/E Ratio, but for next year (2016) it works out at 11.9 on my Buy Price (453.6p divided by 38.30p). That seems pretty damned cheap to me, especially if Arms Spending goes up.
As this Stock will now become part of my ‘Long Term Do Nothing Income Portfolio‘, a Target is a bit meaningless - I will hold it pretty much forever most likely unless it starts getting really high with a daft Valuation. However, in terms of numbers, I would think this Stock easily justifies a Forward P/E around 15 which would give a Target of 582p (38.8p multiplied by 15) and I notice that the EPS forecasts show barely any growth - maybe these could get beaten?
In terms of the Charts, a realistic Target would be 550p which marks the All Time High that was touched back in 1997 and again just recently. This will be a tough level to get through but if it can Breakout, then we are maybe going to see 600p and more in time.
Right, bit of a change this time. I am going to show you the FTSE100 !! Yes, I have lost the plot. This is to highlight something I have been bleating on about on Tweeterereereerer - I have written a lot on my Blogs etc. that I more and more believe I would be far more successful at making Money from the Markets if I could just totally turn off the TV and stop reading any Macroeconomic News. If I just traded in a ‘Vacuum’ (not a Dyson, what are you like?), and purely looked mechanically at the Charts, then I am sure I would not be affected so much by Emotions and sh*te like Greece would not terrify me into making dumb errors.
“Trade what you see, not what you think”……….RoboWheelie.
I have been really battling with this. Last night, I looked at my Index Charts and a lot of Indicators are saying now is the time to Buy. However, with the Greek Referendum Vote on Sunday I just cannot bring myself to close all my Short Positions and to start Buying like a Banshee - but maybe that is exactly what I should do.
So, as a sop to both of my Bipolar Sides, I have done a little compromise where I closed my XUKS Short FTSE100 ETF this morning (please see my Trades Page - and if I have not yet updated it, look at the ‘Changes List’ on my Homepage), and I took the plunge and nibbled some BA. (did I mention this?)
If you look at the ScreenPic below, this shows the RSI (Relative Strength Index) for the FTSE100 in the Bottom Window. Note how the Thick Black Horizontal Line marks the RSI 30 Level where things are generally shown to be ‘Oversold’ - and obviously you should be buying.
In this case, I have pointed out with the Big Blue Arrow where the RSI has turned up from near 30 and this seems like I should be Buying.
The Chart below is a Long Term jobbie, which shows the FTSE100 Uptrend since 2009 Lows - the Black Arrow points out where the Current Price is not far off the Bottom Uptrend line - OK, it may drop a little bit more, but not much I suspect. I see no reason to think we are going into a Nasty Grizzly Wombat Market (should that be ‘Bear’?), as in my Experience (unfortunately far too much) Bears only visit us when there is a Recession going on - Recessions are impossible to predict, but it doesn’t feel like one at the moment…….
As per the Spiel so far, it is clear that I really bought BA. for the Divvy Yield and I wanted to lock it in - so to a large extent my Timing of the Buy was influenced by the Divvy Yield getting bigger and bigger as the Share Price dropped - so I might have bought in a bit early, but I am very keen to get that Divvy - so I think it is an acceptable Risk that I may have gone in too early.
The Chart below shows the RSI in the Bottom Window. The Blue Arrow marks where it is turning up from a pretty low level of 28 - this looks like time to Buy.
The Thick Blue Lines mark a Recent Uptrend Channel (that’s funny, I just realised that 2011 is not all that ‘Recent’ but I am working with a Very Long Term Chart here) and we are down near the Bottom of this Uptrend.
The Crazy Wiggly Wobbly Line is the Defence Sector Index - interesting that BA. has lagged for years - maybe it can catch up a little. Or it might be the sign of a doggy business……..Of course, the Sector looks to be on the Up, so maybe it can even drag a Possible Hound along with it (although there does seem to be a recent ‘Double Top‘ on the Sector Line.)
Enough, I need to get in the Sun !! (oh balls, it’s gone in now)…….cheers, WD