At the start of January, I tipped RSA Insurance Group (LSE: RSA) (NASDAQOTH: RSNAY.US), Anglo American (LSE: AAL) (NASDAQOTH: AAUKY.US) and Debenhams (LSE: DEB) as my top three value buys for 2014.
Less than three weeks later, I’m happy to say they have already delivered an average gain of 9.6%, thanks to a mixture of good news, positive sentiment and broker upgrades.
Do all three firms still rate as buys, or is there now a case for taking profits?
Debenhams: up 9.2%
Investors watched with surprise last week as Sports Direct International took a 4.6% stake in Debenhams, before banking a £5m profit by selling the shares almost immediately. Sports Direct then announced a complex options deal that could lead to the firm taking a 6.6% stake in Debenhams, if the department store’s share price falls further.
In my view, Sports Direct owner Mike Ashley’s involvement is broadly positive, and my investment case for Debenhams remains unchanged — the firm has a strong offering, but needs to manage its stock, discounting and online cost issues more tightly.
Debenhams isn’t quite as cheap as it was three weeks ago, but I think its forward P/E of 10 and prospective yield of 4.0% remain attractive.
Anglo American: up 7.7%
South Africa-based Anglo surged higher last week, after analysts at UBS issued a buy rating for the firm, citing Anglo’s underperformance relative to its peers and its attractive yield and valuation — all of which I commented on in my original tip on January 3rd.
Anglo shares now trade on a forward P/E of 13 and offer a prospective yield of 3.7%. While short-term traders might want to take a profit, I believe Anglo’s recovery plan should yield further gains as 2014 progresses, and rate the stock as a buy.
RSA Insurance: up 11.9%
The biggest winner of my three tips is also the riskiest, in many ways. Investors have pushed RSA’s share price up by nearly 12% in two weeks, after auditors PwC confirmed that RSA’s Irish problems were an isolated incident.
However, RSA is almost certain to slash its dividend when it reports full-year results in February, and may also need to raise new funds in order to strengthen its capital position. For me, the shares’ strong performance has made them too risky. Although I expect RSA to recover eventually, it could be a bumpy ride from here.