Should you sell shares in a good company to avoid a short-term dip, or hold on for long-term gains? The most profitable approach is usually to focus on the long term, but there are exceptions.
According to retail broker TD Direct Investing, three of the top ten sells last week were Barclays (LSE: BARC), Taylor Wimpey (LSE: TW) and Centamin (LSE: CEY).
In this article I’ll ask whether private investors are right to ditch these stocks in today’s uncertain market, or whether it could be more profitable to stay invested.
Barclays
There’s no doubt that the slow speed of Barclays’ recovery has been a disappointment. So much so that the firm’s chief executive, Antony Jenkins, was given the boot immediately after new chairman John McFarlane arrived.
After his success at Aviva, Mr McFarlane’s reputation is at an all-time high. Since his appointment was announced in September 2014, Barclays shares have risen by 20%.
I suspect this has been enough to return many shareholders’ positions to profit and encourage a round of profit taking. I can see why. Both dividend and earnings growth are now expected to be slower than previously forecast and the shares’ discount to book value has narrowed.
Yet I suspect this is a short-sighted view. Barclays still trades at a discount to book value. The bank’s shares are valued on a 2016 forecast P/E of just 9.7, with a 2016 forecast yield of 3.4%. I intend to keep hold of mine.
Taylor Wimpey
Shares in housebuilder Taylor Wimpey have risen by an astonishing 630% in five years. I’m not surprised that investors are choosing to lock in some gains ahead of a possible interest rate rise in the next six months.
However, given the firm’s fast-rising dividends and the UK’s strong housing market, I reckon it could be more profitable to keep hold of Taylor Wimpey shares until signs of a housing slowdown emerge.
Housing bull markets often run for longer than expected, so shareholders who sell risk missing out on fresh gains. I don’t think many investors would have expected Taylor Wimpey to have risen by nearly 50% so far in 2015.
However, while I would hold onto Taylor Wimpey shares, I wouldn’t buy them today. At 2.8 times book value, this firm is already fully priced, in my view.
Centamin
Egypt-based gold miner Centamin is one of just a handful of London-listed gold miners that has continued to make money despite the falling price of gold.
The firm’s shares rose by more than 10% last week, after it reported a 33% rise in second quarter production and pre-tax profits of $47.4m for the first half of 2015.
This strong performance was made possible by cash production costs of just $706 per ounce and an all-in sustaining cost of $853 per ounce. Both figures are well below the current gold price of about $1,120/oz.
Centamin also has no debt and cash and cash equivalents of $212.6m, suggesting that its 2.9% dividend should remain fairly safe.
Centamin shares have fallen recently and I think they look cheap on 10 times 2016 earnings. In my view, this firm’s strong balance sheet and low costs mean that it could deliver big gains when gold does start to recover.