Why I'm Looking to Buy on the Dips

The Week: Morningstar columnist Rodney Hobson highlights some potential buying opportunities after recent results from the likes of Clarkson, Spirax-Sarco and Admiral

Rodney Hobson 14 August, 2020 | 9:29AM
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For long-term shareholders who are sitting out the crisis, this has been the best week for hopeful signs that we have seen for five months. While these are early days and we are likely to see continuing wild swings in the stock market, it is time to look for opportunities to buy on the dips.

Shipping services business Clarkson (CKN) produced surprisingly good results for the half year to June 30. One might have thought shipping pretty much ground to a halt for three of those months but instead clients sought Clarkson’s advice on how to cope with Covid-19, so revenue rose 7.5% with strong gains in the broking division. Pre-tax profits rose from £19.2 million to £20.9 million.

The shares reacted with a 12% rise, though a little caution is required. The second half is traditionally more important for Clarkson and a global recession could turn the tide. However, the company is sufficiently confident to add a 25p interim dividend to its deferred 53p final from last year.   

The shares trade around £25 and are up by more than a quarter since hitting the ocean bed in March. They are, though, still 600p below the pre-crisis peak.

Buying on the Dips

There were decent results, too, from Spirax-Sarco Engineering (SPX) where the dividend is raised by 5%. Revenue and profits were down on last year but were better than expected. The results produced a bout of profit-taking but shareholders should not be too worried. The shares had run ahead of themselves so a correction was well overdue and the price is still way ahead of pre-lockdown levels.

Shareholders should hold on though new investors may prefer to wait for a further dip before venturing fresh money.

A fall in profits alongside a rise in revenue never looks good but these are exceptional times. Infrastructure contractor Balfour Beatty (BBY) redeemed itself to some extent by reporting a rise in the order book.

The shares dropped 4%. I hold a stake so I could be biased but I believe this should be seen as a buying opportunity.

There was inevitably something of a horror story at Intercontinental Hotels (IHG) given that its outlets have been shut but a halving of profits in the first half of 2020 was actually pretty good in the circumstances. Managing to produce a profit at all and reduce debt was quite an achievement.

The figures were good enough to push the shares 6% higher, though that looks quite far enough at this stage as the rest of the year is going to be pretty tough. If you’ve held on this long I can’t see any point in panicking now.

Takeaway Boom

Domino’s Pizza (DOM) has got shut of its loss-making Norwegian outlets and its new chief executive is rebuilding bridges with disaffected franchisees in its home territory of the UK and Republic of Ireland, where the lockdown pushed sales 5.5% higher.

While there is no interim dividend, shareholders like me will at least now get the deferred final 2019 dividend. Given the continuing restrictions on eating out there is every chance that sales will grow for the rest of this year.

The award for the week’s best announcement has to go to insurance group Admiral (ADM), which produced the most impressive figures I’ve seen from any company covering the Covid-19 period. Not many have produced higher profits for any period so far this year and even fewer have raised the dividend.

Admiral shares rose to an all-time high, 50% up from the bottom in March and way ahead of pre-coronavirus levels, so they are a bit pricey. However, if you bought earlier then well done and do stay in for the ride. There should be even better to come.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.