One to Watch

Pearson943.5p -7pScotsman says BUY

PEARSON'S announcement of its intention to sell its stake in Interactive Data Corporation (IDC) prompted me to review the shares.

The sale is due to be completed by September and Pearson has said the proceeds will be used to expand its international, consumer and professional education businesses, probably by bolt-on acquisitions.

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First-quarter figures for Pearson indicate steady progress has been made so far in 2010. The shares trade on prospective 2010 price/earnings ratio of 13.4x falling to 12.5x in 2011, which is a significant discount to its average over the past ten years, but not cheap relative to the market.

The shares offer a reasonable and growing dividend yield (about 3.6 per cent). I therefore consider that Pearson should be viewed as a defensive stock and so if the market's attention again begins to focus on more cyclical companies, as it did for much of last year, its shares will struggle to keep up. However, longer term there is a good argument for owning shares in Pearson.

• The value of your investments may fall and you may get back less than you invested. This does not constitute investment advice and you should take professional advice regarding the suitability of this company for your portfolio.


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C&W Communications

59.25p +0.9p

Broker says HOLD

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