Premium content from Motley Fool Share Advisor UK

Our monthly Ice Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of income-focused Ice recommendations, to help Fools build out their portfolios.

• While Diageo was formed in 1997, the history of many of its famous brands stretches back much further. Its six top brands were all founded between 1759 and 1974 – potentially demonstrating resilience.
  
• Diageo has produced top-line growth in all regions in the beginning of fiscal 23 – and it’s targeting operating profit growth of 6-9% between 2023-25.
  
• Its performance reflects its outstanding portfolio, continued investment in brand building, and its agile supply chain.
  
• It has a stable track record in raising its dividends for shareholders with a five-year CAGR of 3.9%. It currently offers a trailing yield of 2.1%.

More reading

Mark Rogers has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Premium content from Motley Fool Share Advisor UK

Our monthly Fire Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of growth-focused Fire recommendations, to help Fools build out their portfolios.

• Games Workshop manufactures miniatures used for wargaming under the Warhammer brand.
  
• The vertically integrated business has no real competitors that can match its control over the design, manufacture and distribution of its models and rule books.
  
• In keeping with its historic release schedule, the latest edition of its most popular Warhammer 40,000 game potentially launches in 2023, and higher profits should follow.
  
• Even if the global economy threatens short-term sales, the company will likely retain strong pricing power in the long run – indeed, its loyal fans are happy to see their collectibles inflate in value each year.

More reading

The Motley Fool UK has recommended Games Workshop. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Premium content from Motley Fool Share Advisor UK

Our monthly Ice Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of income-focused Ice recommendations, to help Fools build out their portfolios.

• Globe-spanning telecoms giant that runs mobile and fixed networks in 21 countries, serving about 315m mobile customers, 28m broadband customers, and 22m TV customers.
  
• Typically, the company’s network quality ranks in the top two in the countries where it operates, allowing it to compete on quality and attract more valuable, heavy data-hungry users.
  
• The company is also well positioned in the enterprise market, which is currently about 27% of service revenues. It’s taking market share, driven by businesses shifting to the cloud.
  
• Currently offers investors a 7% trailing yield.

More reading

The Motley Fool UK has recommended Vodafone. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Has the market been kind to your portfolio in 2015?

I have a feeling your answer may differ, depending on whether or not you own a large chunk of commodity and oil shares!

I was browsing through a list of the FTSE 100’s risers and fallers last night, and I was taken aback at just how severely the mega-commodity behemoths had crashed in 2015.

BHP Billiton has tanked by 43%… Rio Tinto has lost 31% of its value… and commodity trading giant Glencore has crashed by 71% in 2015 so far!

That doesn’t make for pleasant reading for anyone who owned these goliaths of the resources market this year — and if you’re among them, I sincerely hope your fortunes improve in 2016.

But as I sat trawling through the numbers, something else dawned on me too…

The FTSE’s Biggest Names in the Red…

It hasn’t been a great year for a number of high profile FTSE 100 giants, even outside of the resources sector — many of them among the most popular shares owned by UK investors.

Emerging market bank Standard Chartered dropped 45%. British Gas owner and utility giant Centrica fell 24%. Supermarkets Tesco and Wm Morrison suffered another year of declines, 14% and 20% respectively.

And of the top 8 performing FTSE 100 shares this year?

I doubt many individual investors would have even heard of most the names — let alone owned them in their portfolios!

The two largest companies in that list were £17bn CRH — which sells cement and rubble — and £7bn Mondi, which makes paper and packaging products.

The FTSE 100 has dropped 5.1% this year, but I’d be willing to bet that most individual investors have found things even more challenging than that figure suggests…

…Considering you’re a lot more likely to own the likes of Tesco and BHP Billiton than obscure packaging and cement companies!

So, it’s been a tough year for the FTSE 100 — and an even tougher year for the investors who own its most popular shares.

But it’s not been all doom and despair for everyone in 2015…

That is, if you know where to look!

You see, while the FTSE 100 has lost 9% this year, the FTSE SmallCap index has actually gained 4.04% in 2015. That’s around a 13% differential in performance… and the critical difference between profit and loss.

Chart from Google Finance — red line is FTSE 100, blue line is FTSE SmallCap Index

The small-cap market is home to all sorts of attractive, niche, fast-growing businesses — the sort that my team and I research and recommend over at our premium advisory service, Motley Fool Hidden Winners.

It’s not just over the past 12 months that small-caps have outperformed, too.

Let’s zoom out and take a look at performance over the last five years…

Chart from Google Finance — red line is FTSE 100, blue line is FTSE SmallCap Index

Astonishing, right?!

The FTSE SmallCap index has utterly thrashed the FTSE 100 blue chip index in the last five years — thanks to performances from companies that most investors have probably never even heard of.

It’s in this arena that it really pays to know what you’re looking for — especially given the added risks of investing in the less liquid, more volatile world of small-caps.

Will small caps continue to outperform the titans of the FTSE 100? That’s impossible to say with any certainty. But going into 2016, I can tell you that with my own personal portfolio, I’m on the hunt for the market’s “Hidden” champions…

And from what I’m seeing… when you know where to look… there’s no shortage of compelling opportunities to be found.

More reading

Mark Rogers has no position in any shares mentioned. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

In the latest of a string of staggering developments, yesterday afternoon embattled small-cap Globo (LSE: GBO) announced that it had entered administration, little more than a week after the company revealed shocking details of the “falsification of data and the misrepresentation of the Company’s financial situation”.

Prior to last week, Globo was a popular share among British private investors, commanding a market capitalisation of £300m in 2014 — but now it seems doubtful that investors will see a penny.

Globo reported a cash balance of €104m only a couple of months ago. Where did that money go? Was it ever there to begin with? Was Globo a fraud all along?

Angry investors caught up in the scandal are demanding answers.

Globo meltdown

Here’s the statement in full:

It’s been an astonishing ten days for the “mobile application specialist”, and here at the Fool our sympathies go out to the ordinary private investors caught up in the mess. Many of those burned by the Globo scandal — much like the Quindell debacle last year — were everyday investors who saw value in the “high growth, low P/E” share.

But there were plenty of warning signs to take heed of in Globo’s case.

Reported profits were failing to translate into actual cash flow after using the trick of “capitalising” millions in hidden costs into intangible assets on the balance sheet. Despite reporting having €104m in the bank, the company attempted to borrow even more money at high interest rates — another serious “red flag”. I’d like to credit Stockopedia’s Paul Scott for his excellent work in flagging up these concerns on his daily small-cap blog.

No “Hidden Winner”

At The Motley Fool’s small-cap advisory service Hidden Winners, my team and I issued an official warning to our members to “Avoid” Globo back in early October, citing these worries about the company’s accounts. But I’ll be the first to admit that we couldn’t have predicted how rapidly things would deteriorate less than a month later!

I think it goes to show how important it is for investors to focus on “quality” when investing in small-cap ventures. It really is crucial for private investors to be extra cautious when it comes to reviewing small-cap shares, especially when the value on offer seems “too good to be true”. In the case of Globo, that was certainly the case — and with the shares on the verge of being cancelled from AIM, investors are looking at losses of 100%, no matter what price they paid.

At The Motley Fool, and in our Hidden Winners small-cap service, we’re not just interested in reported growth numbers or a “low P/E” — these are simply rule-of-thumb metrics to give a rudimentary snap-shot of value. You really have to dig deeper to ascertain the true value and potential of a long-term investment.

Small-cap investments can offer wonderful opportunities to grow your wealth, but you really do have to focus on the underlying business.

More reading

Mark Rogers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Optos develops some of the world’s foremost optical diagnostic and treatment devices, and despite its humble beginnings, sells most of its wares in the high-end US market.

It’s true what they say — the eye really is the window of the body. The retina is one of the best early warning systems for conditions like heart disease, and even cancerous cells can be spotted early in retinal tissue.

Optos’s retinal imagery devices can do what others cannot — it is the only system capable of mapping as much as 82% of the retina and its all-important periphery, which is so hard to capture.

And with the release of new device Daytona, which weighs just 25kg and is scaled to fit in smaller doctors’ and optometrist offices, this high level of insight can now affordably be brought to patients around the world.

Optos recently reported annual results showing a 13% jump in underlying revenues, and I believe the company could have further to grow. With the shares making an assault on their all-time high, I still think these shares could play a blinder in the years ahead.

More reading

Mark Rogers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Six long years have passed since the financial crisis of 2008.

Times change — and the stock market moves faster than you can blink. As circumstances alter the very nature of an industry, it pays to think twice before assuming the status quo will always remain intact.

This was true on the way down for banking stocks, as investors lost their shirts betting on the revival of the likes of Lloyds (LSE: LLOY) (NYSE: LYG.US) and RBS before massive dilution caused serious — perhaps permanent — loss of capital.

But the same could be true, and has been true, on the way back up for Lloyds. The market, in my view, has been too quick to damn banking shares for eternity — a lingering pessimism that persists to this day.

I’ve been guilty of this too, so bear with me!

I think investors have been quick to dismiss or cast aside Lloyds as “uninvestable” over the past few years, despite the recovery in the share price, pointing to the seeming inevitability that another crisis could cause investors even more hurt. How could a business model that has periodically destroyed value be trusted with your hard earned money as a long-term investment?

(Not just during the crisis, but in the decade prior, Lloyds did not delight shareholders…)

But investors betting on a brighter future for Lloyds have been rewarded tremendously since 2011, with the shares gaining 121% in the last three years. And now that the bank appears to be on a more stable footing, I think it’s time for long-term investors to take an unbiased, fresh look at the new and improved Lloyds.

Lloyds is no longer the lumbering, troubled bank it once was — its financial strength, measured by its Tier 1 Capital ratio, has improved from a weak 8% in 2006 to almost 15% today. Lloyds is Britain’s biggest mortgage lender. It is cleaner, leaner and is on track to become a profitable, dividend-producing enterprise — far removed from the toxic wasteland it was once considered.

There’s a lesson here in my view, and one that I’ve learned myself in recent years — you can miss so much by judging a business solely on its past. You can avoid many common mistakes by responding better to change as it happens — and make better decisions, too.

In my view, Lloyds is well worth a closer look through fresh eyes. It’s not so simple to apply Lloyds’ previous pitfalls to itself — and it might in fact be more worthwhile comparing the new company’s model to Wells Fargo in the US.

Wells, the leading lender in the US (with a reputation for common sense practices), has a history of creating value for shareholders through tough times, and has delivered a total return of 3,500% to shareholders since 1990. It’s clear that this type of model can produce satisfactory returns for shareholders — could this be the future for Lloyds?

More reading

Mark Rogers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

At the time, pondering Lloyds’ new-found popularity, I asked what the City experts thought Lloyds was likely to earn in the years ahead.

Why? Well, when we’re hunting for bargain stocks here at the Motley Fool, we need to come to an estimate of what an underlying business could be worth — and the valuation of all shares depends on how much cash that company is capable of generating over time.

Analysts had just upgraded Lloyds’ earnings estimates by a further 8% to a consensus of 5.41p per share for 2013, and 6.54p per share for 2014. This placed the shares on a forward price-to-earnings multiple of 13.3, and may have tempted many an investor to get on board with the burgeoning recovery story. So, was the City’s new optimism right on the money, or did the experts get it wrong?

As it happens, the consensus estimates may have drastically underestimated Lloyds’ near-term recovery prospects. And after making even further strides to turn itself around, it now seems Lloyds is expected to make more than £7bn in pre-tax profit this year — or 7.2p per share.

Great news, right? It could be — but for Lloyds shareholders who have owned the stock over the intervening 12 months, it may not seem that way, with the shares almost exactly flat over the past year.

So, what gives — things appear to have gotten even better for Lloyds’ earning prospects, but the shares are still languishing, now on a forward P/E of just 9.3. Should we be racing out and buy the shares?

I actually agree that Lloyds looks cheap today, given the progress in its turnaround story, and what the company should be capable of earning based on its considerable asset base. And as a long-term business minded investor, I’m not one to be put off by the prospect of share price volatility from the Scottish referendum.

But I think there’s a useful lesson to be learned here in how rapidly analysts can revise their estimates of a company’s earning power — and how the market’s reaction to this can often confound ordinary investors. There are a great many factors which drive share prices, and analysts are often quick to change their mind about a stock. By focusing on these short-term factors, investors can make costly decisions.

More reading

Mark Rogers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The moment an entire generation of investors has been waiting for…

Stocks are well and truly back in fashion — and after 14 years of hurt, the market is merely a whisker away from making a brand new all-time high.

That’s great news for many reasons.

It reflects how much better the economy is faring, with manufacturing activity booming and new jobs being created. It shows how far we’ve come since the financial crisis…

And it means that almost everyone who has ever bought (and held onto) a stock-market tracker is showing a capital gain on their investment!

How about that for an endorsement of buy-and-hold investing?

But as someone who is constantly hunting for opportunities among cheap shares, I have to admit something:

This roaring market isn’t making my life easy!

During the crisis years, buying opportunities were never too hard to find — but 2014 is proving to be a very different beast for value-minded investors.

I’m Still Buying!

Even though the market has had a great run, and opportunities aren’t easy to find, I’m not sitting on my hands…

And with interest rates so low, there’s no way I’m sitting on piles of cash, either!

It might be a challenge, but I’m still finding good opportunities to invest my money into top-class shares.

Indeed, not every stock is on a mad, speculative ascent.

In fact, if you know where to look, I think you can still find cheap, attractive shares to own for the long term.

They’re not always popular — in fact, some are outright obscure! — but I do rather enjoy getting my hands dirty and digging around for potential hidden gems.

Today, I’m going to unveil three opportunities that I think could match that billing…

In my view, they’re all attractively priced, and for now they all seem to be off most investors’ radars…

Three is a Magic Number

Let’s get straight to it: investment idea number one!

This is actually a share I’ve owned for several years…

Stanley Gibbons (LSE: SGI) is the oldest merchant of rare stamps and collectables in the world, having occupied its world famous shop on The Strand since 1891.

People have been collecting stamps, fine art and antiques for hundreds of years, and Gibbons occupies a specialist role within this slow-moving niche. Its reputation and brand, in my view, are underappreciated by the market.

The shares have dropped 27% since reaching an all-time high earlier this year, and in my view, this pullback could offer investors a chance to take a closer look.

Having acquired the similarly reputable rare-coin vendor Noble Investments last year at an excellent price, Gibbons is expected to make a record pre-tax profit of £13m this year, and trades on a forward P/E of just 12!

I think the market has seriously underestimated the new-look Stanley Gibbons, and I’m personally considering topping up my holding for the first time since 2011…

A defence play boasting high barriers to entry

My second stock isn’t exactly “obscure”… in fact, it’s a constituent of the FTSE 100!

But Meggitt (LSE: MGGT) is far from a household name — and with the shares down 18% from their highs, they’re out of favour with investors, too.

I see hidden underlying potential in this aerospace and defence specialist, despite recent pressure on global military spending.

Meggitt makes precision equipment parts that are required to work in extreme conditions. Fire sensors that are equipped on 90% of commercial aircraft for instance, and braking systems that are used on both Airbus’ and Boeing’s leading jets.

Meggitt’s specialised niche affords the company high barriers to entry, and competitive advantages in its field — which, combined with consistent and expanding cash flow, piques my interest.

With the shares trading at 14x forward earnings, Meggitt might not seem like a screaming bargain — but if the company can show it can return to strong growth, I think the shares could be re-rated significantly higher, reflecting a premium earnings multiple for that expansion potential.

It’s on my watchlist!

Down 42% but could now be a bargain

Lastly, I’d like to highlight something of a higher risk (but potentially higher reward) “bargain” opportunity.

It’s another share that I own personally…

The company is ITE Group (LSE: ITE), which operates trade shows and exhibitions in emerging markets.

The biggest of those markets, sadly for ITE recently, is Russia… and with geopolitical tensions boiling higher, ITE’s largest market faces the threat of sanctions and disruption.

Yet in my view, the market has severely overreacted in marking down ITE’s shares, which are off a whopping 42% from their high point last year.

ITE appears to have a great business model, collecting plenty of cash up front from its customers, and creating events that compound their importance with visitors as time goes by.

In my opinion, ITE will survive and overcome the problems it faces in its largest market in 2014 — eventually expanding its reach further into new regions.

Trading at just 10x forward earnings, ITE looks cheap to me — although this situation isn’t for the faint of heart, and isn’t without the immediate risks that come from operating in Russia.

I’m a fan of the shares at these levels personally, and expect I’ll buy more if we see another leg down in the price.

So there you have it Fools — three potentially undervalued investment ideas in a market that’s hitting new highs!

More reading

Mark owns shares in Stanley Gibbons and ITE. The Motley Fool has recommended shares in ITE.

No magic formulae for beating the market…

No book you can read to become Warren Buffett overnight… 

No ‘system’ for getting rich quick…

(And if anyone tries to tell you otherwise, hold onto your wallet!)

But what if there was one simple thing you could do, right now, which could improve your returns?

In my opinion, the key to successful investing isn’t found in adopting complex, automated systems, or intricate chart-reading techniques.

Instead, I think it’s often the simplest of changes that could help many ordinary investors make more money from the stock market.

Some are so simple, actually, that they might seem blindingly obvious…

But you’d be amazed at how powerful tips such as these can be.

Let me share one with you today, which in my view, could dramatically improve your returns…

Increase Your Time Horizon

Here’s a fact that I’d love to change.

According to recent research, the average investor holds stocks for a median time period of just six months.

I’d like to say that’s surprising, but it isn’t…

In fact, many ‘day traders’ hold stocks for mere minutes before selling out!

But when we think about investing here at The Motley Fool, we view shares as part-ownership stakes in living, breathing businesses.

And while stock prices gyrate from one number to the next as the days and weeks go by…

The actual value of companies, generally, don’t change much at all.

Businesses — the good ones, which we try to invest in! — tend to become more valuable over periods measured in years and decades.

And I think that some investors are really missing out on the huge benefits that can come from simply taking a longer time horizon with their investments.

Don’t Lose Your Edge

Having “time on your side” is invaluable.

It’s a huge edge that private investors have over fund managers, who might fear for their jobs if their portfolios suffered a bad quarter…

You aren’t constrained by the same pressures to “beat the benchmark” every month…

(One of the most pointless ways you can measure yourself, in my view, if you’re a long-term investor…)

Instead, you can afford to take the long view, and make decisions with years and not weeks in mind.

You can be patient — something that many professional investors cannot be.  

This, in my mind, is where many fund managers fall short — and fail to justify their expensive fees.

And then there’s the phenomenal power of compound interest!

(There’s a reason Einstein called it the “eighth wonder of the world”!)

The longer you’re willing to invest for, the better chance you’ll have of benefiting from the remarkable wealth-building forces of long-term compounded returns.

Short-term minded investors are lucky if they even hold a stock for long enough to receive a dividend — and if they do, they probably hardly think about it.

But over the long-run, dividends — especially if you reinvest them, as part of a smart investing strategy — can become overwhelmingly important to your returns.

To use a vanilla example, take the FTSE 100 since the start of the millennium.

Since the start of January 2000, the FTSE 100 index is down 5%.

Hard to believe isn’t it?

That over such a long period of time, buying and holding a FTSE 100 tracker – and spending all the dividends — has produced a negative result.

At this point you may be asking: “Mark, what about all this long-term patience you’ve been preaching about?! 14 years of waiting with nothing to show for it!”

But with dividends taken into account, and reinvested, you’d be showing a 56% gain, even if you’d bought near the top of the tech bubble!

Put in perspective, a £100,000 investment would’ve been worth just £95,000 if dividends were ignored… but £156,000 if those dividends were reinvested in the market!

That’s a huge difference, and it’s the wonder of compounding that we have to thank for it…

Think Longer, Think Bigger

The longer time period you look at, generally, the less your returns will have to do with bull or bear markets, or short-term macroeconomic issues…

And the more they will come down to the businesses you part-own, through your shares.

Let me give you the inside scoop on a poorly kept secret around here:

At our share-picking service, we do NOT make recommendations based on which shares we think will go up or down next week or month.

That’s because we don’t have that sort of skill.

Indeed, we think most commentators would be better off throwing darts at the Financial Times, trying to guess price directions over that timeframe!

That might sound like an odd thing to admit. But I hope you will appreciate it’s the honest truth.

Instead, we aim to help our members enjoy market-beating returns by helping them to invest for the long-term in the highest-calibre businesses. 

And as those businesses grow, and become more valuable, we aim to share in the wealth they create.

So if you’re looking for an easy way to improve your returns, my simple tip is this:

Make your average holding period as long as possible.

More reading