Choosing which stock to sell from your own holdings is often harder than identifying new shares to buy. But I often enjoy a great feeling of relief when I finally cut loose stocks that have failed to live up to my expectations.
Today, I’m looking at a FTSE 100 stock from my own portfolio that I’m planning to sell in August. I’ll also consider the outlook for another big-cap that’s out of favour at the moment.
I’m losing hope
Value investing requires a patient, long-term outlook. But there are times when you have to accept that your money could be earning better returns elsewhere. I’m beginning to feel that way about Asia-focused bank Standard Chartered (LSE: STAN).
I’ve owned shares in this bank since 2015, hoping that the stock’s 30% discount to book value would drive a re-rating of the share price. Unfortunately, I underestimated how long it would take the bank to resolve its legacy issues and return to a decent level of profitability.
In today’s half-year results, the bank said underlying pre-tax profit rose by 23% to $2.4bn. Bad debt levels fell by 50%, and the interim dividend was resumed at 6 cents per share.
Good, but not enough?
The bad news is that, once again, the bank’s overall performance was below expectations. Revenue of $7.65bn fell short of consensus forecasts for $7.86bn. And operating costs rose by 7% to $5.1bn.
Higher costs limited the improvement to the group’s return on equity, which rose by 1.5% to 6.7%. That’s still well short of the bank’s medium-term target of 8%, which now seems unlikely to be reached until next year at the earliest.
A second concern is that costs are expected to rise again during the second half. Given that revenue is expected to be slightly lower during this period, I suspect analysts may cut their profit forecasts for the full year after today’s results.
I’m also frustrated that after 5.5 years, Standard Chartered still hasn’t managed to achieve a compliance programme that will satisfy the US Department of Justice. As a result, its operations remain subject to supervision under a Deferred Prosecution Agreement.
Although the shares look cheap, I think they’re probably correctly priced at the moment. I see better value elsewhere.
This could be a falling knife
It’s no secret that many major UK retailers are struggling. A number are in the process of trying to close stores, or negotiate rent reductions. So business isn’t easy for retail landlords, such as FTSE 100 member Hammerson (LSE: HMSO).
Shares in this retail property specialist trade at a 33% discount to its net asset value of 776p per share. But in my view this valuation is probably too high.
Major shopping centres rarely change hands, so it’s hard to know what a realistic market price might be.  But Hammerson has sold £300m of retail parks so far this year, at a 10% discount to their December 2017 book value.
Rival Intu Properties reported a 12% fall in the value of its property portfolio for the six months to 30 June.
I don’t see any obvious reasons why Hammerson’s portfolio won’t be subject to similar pressures. I believe management is discredited after recent failed takeover activity and would avoid this stock for now.