The Sunday Times - UK (2022-05-29)

The Sunday Times May 29, 2022 13

MONEY

to 0.7 per cent, trading on a price/earn-

ings (PE) ratio of 22. Like London house

prices, that looks expensive, and there

have always been pessimists predicting

doom for both, but history shows that

optimism usually proves more profita-

ble. I have no plans to prune my AAPL.

Deere (DE) the tractor maker is my sec-

ond-largest holding and was the subject

of last week’s column. So I will merely

report that I bought more at $315 on the

day DE’s price fell 13 per cent on what

looked like good numbers to me. Now Mr

Market seems to agree, DE now costs

$356 and equals 6 per cent of the fund.

McDonald’s (MCD), the fast-food

chain, is third and 7 per cent down YTD. I

first invested in July 2014, paying $95 for

shares that cost $251 now. Its PE ratio of

25 looks pricey, but gross profits of 55 per

cent and a dividend yield of 2.4 per cent

mean I am lovin’ it. So I bought some

more at $230 before they go ex-dividend

on Tuesday.

Nestlé (NESN), the world’s biggest food

business, is my fourth-ranking asset and

down 10 per cent YTD. But gross profits

of 48 per cent and a PE of 19 for a yield of

2.5 per cent look appetising.

Archer Daniels Midland (ADM), the

agricultural commodities giant, is a new-

comer to my top ten at No 5 and also got a

good show here last week. Exceptional in

adversity, it remains 27 per cent up YTD

on a PE of 16 with dividend income of

1.8 per cent.

BHP Holdings (BHP), the world’s

biggest miner, is another newcomer at

No 6, after beating the market’s down-

ward trend by rising 13 per cent YTD even

after going ex-dividend on Wednesday.

Income of 11 per cent on a PE of 9.6

remains attractive.

Pfizer (PFE), the vaccine maker; new-

comer Novo Nordisk (NOVO), which

makes insulin; and Worldwide Health-

care Trust (WWH), the self-descriptive

investment trust, are my next-biggest

holdings, all based on the fact that the

world’s population is growing older and

wealthier — and richer wrinklies tend to

spend more on medicine. They are down

5 per cent, up 2 per cent, and down 14 per

cent YTD respectively.

Unilever (ULVR), the consumer goods

group, props up my top ten, despite fall-

ing 14 per cent YTD. Transferred into my

“for-ever fund” at £25.45 in 2013, shares

now cost £34.80 and yield 4.1 per cent.

To return to where we began, it is note-

worthy that the FTSE 100 has fallen

0.5 per cent over the past five years while

the S&P 500 has risen 69 per cent and the

Nasdaq soared 91 per cent higher. So only

folk with very short-term views and insuf-
ficiently diversified portfolios should be
panicking now.
Nobody knows what will happen next,
but, after years of being mocked for bang-
ing on about the importance of income,
this long-term investor is glad to see yield
back in fashion. Even if share prices con-
tinue to fall, dividends should provide
S some comfort and pay us to be patient.

pring storms shocked global

stock markets, blowing

nearly a fifth of the froth off

the top of the world’s biggest

share price index, the Stan-

dard & Poor’s 500. America’s

technology-focused Nasdaq

fell even further, plunging

24 per cent, while Britain’s

FTSE 100 benchmark kept a

stiff upper lip, trading just 1 per cent

lower than at the start of this year.

Coming down from the clouds, your

humble correspondent’s life savings

were not immune from the share price

swoon. Three of my top ten assets by

value dropped out of the lead peloton.

Because I know some of you enjoy my

pratfalls more than my profits, let’s start

with the losers. Adidas (stock market

ticker: ADS), the sports goods giant,

tripped up with a 31 per cent fall year-to-

date (YTD). Meanwhile, the self-descrip-

tive investment trust Polar Capital Tech-

nology (PCT) is down 29 per cent YTD

and Givaudan (GIVN), the flavours and

fragrances maker, fell 26 per cent YTD.

Falling out of my top ten hasn’t forced

me to sell any of these shares. I continue

to expect rising demand for the goods

and services they sell, even if share prices

have further to fall.

Perhaps surprisingly, my new top ten

continues to be led by Apple (AAPL), the

technology giant that has been rebooted

19 per cent lower YTD. The explanation is

that, allowing for a subsequent four-for-

one stock split, I paid $23.75 in February

2016, for shares that now cost $148 and

constitute more than 6 per cent of my

“for-ever fund”.

Since buying my first computer in

1990, I have watched AAPL’s ecosystem

expand to include phones, watches and

much else besides. Comparisons with

one-trick ponies such as BlackBerry and

Nokia are fatuous. I can’t imagine leaving

a business whose pieces of kit communi-

cate with each other and whose genius is

to make technology attractive for people

who don’t much like technology.

When I first invested AAPL was paying

2.2 per cent dividend income, but its

soaring share price has shrunk the yield

Ready, set, stop. Adidas shares are

holding back my retirement fund

Ian Cowie Personal Account

Investors may need to

reconsider the companies

that will help to defend their

portfolios during a period

of high inflation.

Many have considered

the American retail giants

Walmart and Target as

defensive stocks because

the products they sell are

cheap or essential, so

they should be able to

increase their prices and

not lose sales.

This may be true, but as

we’ve seen recently, their

profits might take a bit hit.

Target and Walmart both

increased their sales slightly

between February and April,

but Target’s net income

halved, which was not

what investors wanted

to hear and shares were

marked down 29 per cent.

More pain is expected.

Investors will be watching

to see whether Britain’s so-

called defensive stocks such

as Unilever, Diageo and Tesco

suffer the same fate.

Tesco is facing stiff

competition from cheaper

supermarkets. Aldi and Lidl’s

share of the grocery market

stood at 15.9 per cent in May,

up from 13.9 per cent on

Boxing Day.

Tesco has warned of

“significant uncertainties”

and expects to have to keep

its prices low to ward off Aldi

and Lidl.

The iShares S&P 500

Consumer Staples exchange

traded fund (ETF) has been

resilient this year, up 2.8 per

cent versus the iShares S&P

500 ETF’s 9.5 per cent loss.

Still, worries persist.

So, which companies do

offer pricing power?

Sid Chand Lall from the

wealth manager Canaccord

Genuity likes companies that

own luxury brands or sell

luxury products. They sell to

people with lots of money

that are less likely to be

cutting back on expenditure.

In the car market, Chand

Lall suggested Ferrari, which

makes about 10,000

cars a year, giving them a

scarcity value. In jewellery,

Watches of Switzerland’s

revenues and profits are

at record highs.

A 1955 Mercedes-Benz

300 SLR recently smashed

the world record for a car

sold at auction, going for

£114 million. A 1967 Cartier

Crash watch did similar,

selling for £1.3 million.

Peter Rutter from Royal

London Asset Management

suggested that companies

that sell to businesses might

have better pricing power.

“You might put up the

price of something, but

consumers can do things

like trade down to something

cheaper,” he said.

Microsoft, while not

cheap, is the one “hiding

in broad daylight”. “Ask

yourself, will we still be

using it in 20 years’ time?

Probably. And if Microsoft put

the price of what they do up

5 per cent, I don’t think The

Times or Royal London will

be turning it off.”

Companies at the coal-face

of rising inflation could be a

good idea too. These may

include food firms, miners

or energy stocks. “If you are

worried about fuel bills,

buying an energy company

might be a wonderful hedge

against that for the next five

years,” Rutter said.

David Brenchley

TRADING DOWN

Grocery market share

Te s c o

Aldi Lidl

Morrisons

2014 2016 2018 2020

Source: Kantar

30%

0

5

10

15

20

25

1.8%

The fall in the

FTSE 100

since the start

of this year

Good and bad news — or

at least views — came from

two wise old observers this

investor encountered when

pottering round the Royal

Horticultural Society Chelsea

Flower Show on Monday.

First, I ran into my former

editor at another newspaper

who now spends much of

his time writing excellent

military history.

So it seemed reasonable

to ask Max Hastings how long

he expects the war in Ukraine

to continue.

He looked sad and said: “A

long time.” I have the highest

respect for Max, not least

because he saved my skin 30

years ago in a £10-million libel

case. As it happened, we won

at the very same Court 13 in

the Royal Courts of Justice

where the rather more widely

followed Vardy v Rooney

litigation ended recently.

Here and now, if grain

and gas supplies suffer

sustained disruption, this

will underline the

importance of national food

and energy security. There

is not much individuals can

do about that, but investors

can obtain equity exposure

to both sectors — as

repeatedly recommended

here in recent years.

Then I ran into Peter

Hargreaves, the billionaire

co-founder of Britain’s

biggest investment platform.

He cheerfully recalled

turning me on to ITM Power

(ITM), the Sheffield-based

maker of green hydrogen.

I first invested at 41p in

2010, then, more heavily,

at £1.24 in January 2020,

before taking profits at

£5.34 last year, as reported

here and elsewhere at

those times. The rump

of this stock remains a

substantial holding.

We shared a chuckle

about ill-informed cynics

and their perennial — but

unprofitable — pessimism.

It just goes to show that

there is a world of difference

between frivolous short-term

speculation and serious long-

term investment.

The long-

range

forecast?

Unsettled

CHRIS RYAN/GETTY IMAGES

The firms that really can

fight off rising prices