Chipping away at the blind spots

This month’s Thrifty screen has dredged up a bunch of shares dependent on the moribund housing market and Jersey Electricity, which fascinates and frightens me.

[Spreadsheet]

Jersey Electricity is quasi-utility with a monopoly on the electricity supply to the island of Jersey via two submarine cables controlled by the local government. When I last looked at it, the shares cost more than any other in the UK market, but relative to all the property the company owns, it’s among the cheapest.

Because it derives its low valuation from its status as a utility, Jersey Electricity doesn’t fit the profile of a typical Thrifty company, which is a temporarily distressed and may be recovering. Scapa, a company that makes adhesive tape looks more promising. It’s twentieth in the screen, and so not shown here.

[Spreadsheet]

The Nifty screen, which identifies ‘hidden champions’, businesses that can sustain high profitability, is dominated by companies in risky businesses sectors that have grown strongly thanks to the tailwind of globalisation. The market values of oil exploration and production companies, ship brokers and miners depend even more than most on continuing global growth, which is uncertain. What is certain is the destinies of companies in sectors like this are not in their own hands,

I’m simply overawed by the long cycles of boom and bust that drive these companies and paralysed by indecision when deciding whether they are safe investments.

The most likely companies to make it in to the Thrifty 30 from the Nifty screen are in the bottom half of the table. Haynes, Dewhurst and Colefax are already in it. Chime is a former constituent I have mixed feelings about. Video game retailer Game, and construction company T Clarke, make the table by virtue of their very low valuations but probably don’t belong in a list of stable growing companies due to crumbling business fundamentals.

My local Game shop has a poster on its window saying:

It’s not just about the games… We also sell iTunes cards, Club Penguin memberships [and more, see the picture below]

It looks desperate when a company sidelines its core business in its own promotions to flog Angry Birds key rings. Today it’s promoting access to entertainment that can only be delivered online, and that shift to online distribution has undermined Game’s status as a Nifty company.

Choosing from the Nifty list then, three of the bottom five companies look worthy of investigation: Sausage maker Cranswick, fashion house Jacques Vert, and medical device company Smith & Nephew. Despite being bottom of my table, they’re still in the top 10% of all companies that meet the Nifty criteria.

To make the tables more relevant, I could exclude some of the sectors that baffle and repel me, like property, financial services, media, oil and gas, and mining, but I like to see the companies I’m choosing to avoid.

Although I can’t make sense of many of them now, I may be able to one day. And surely that’s the way to become a better investor: Chipping away at the blind spots.

Nice poster, shame about the message'