Banks looking a good buy as stock market makes a comeback
The tail end of 2012 was a bumper time for the stock market. The FTSE is back over 6000 and in shooting range of all-time highs.
This will be a surprise to the casual onlooker. How can the market be strong when the economy is apparently so weak and times so hard?
Missing a market rally during apparently bad times is a common mistake.
The market doesn’t care about words; it looks past the news, out a year or two, to the most likely future.
So the market is telling us there are better times ahead. This is a clue to what investors should be looking to buy. The UK is about to make a comeback.
Firstly, it is no good buying a few shares and hoping for the best. Investing in the market is a game of patience.
Many people try to treat the stock market like a casino rather than a savings bank, then feel hard done by when the market treats them like gamblers and strips them of their stake.
Avoid the gambling urge and instead invest in a portfolio of 30 stocks built up over three to five years. Slowly add new stocks as funds allow.
So in 2013, if you are looking to build up a portfolio, you are planning to add five or six shares to your portfolio on the way to building up 30-40 shares over the long haul. I call this “getting rich slow”. Trying to get rich quick is the recipe to getting poor fast.
So what to buy in 2013? If things are going to get better, the first companies to bounce back are going to be the benighted banks.
They have come a long way already but there is still plenty of upside in Royal Bank of Scotland, Lloyds and Barclays plus, if you like your risk spread thick, Bank of Ireland.
If the good times roll, these names will double. It might take two to three years but that’s still a great return.
Retailers are taking a hammering because everyone believes the internet is going to kill off the high street entirely. They are kind of right; after all, when you think about an average shop it’s a place with a jumble of stuff, most of which you don’t want. No wonder things are looking bad for shops when online is cheaper and easier.
But the Apple store experience is the way ahead; stores with focused product and high production values will fill the void. This is why I like French Connection. It is hardly Burberry, but it has a strong brand, a solid balance sheet and the sort of lowly valuation that doesn’t match its financial performance. It is the kind of store that can move from old-style hotchpotch shop to new wave store and hence a buy.
My favourite of last year was Trinity Mirror and, even after a massive rise, there remains a strong upside.
The theme is the same. Like the UK economy, banks and retailers, print media has the ability to come back from the dead.
If 2013 isn’t the year of the comeback then 2014 most certainly will be. Investing is a game of patience and now is a good time to start dealing yourself a new hand.
Fundamentally, the only way to get in at the bottom is to buy early, then wait.
l Clem Chambers is chief executive of stocks and shares website ADVFN.com