Whether it comes down to valuation concerns, risk exposure, changes in strategy, or any other reason, it’s inevitable that there will be times when investors ought to consider selling all or part of their holding in stock.
AB Dynamics
What it does: AB Dynamics designs, manufactures and supplies advanced testing, simulation, and measurement products to the global transport market.
By Paul Summers. Having had my finger over the ‘sell’ button for several months, I’ve now disposed of my position in vehicle testing firm AB Dynamics (LSE: ABDP).
To be clear, this isn’t because I think the company is doing anything wrong. Indeed, it’s been a profitable business for many years and continues to boast a robust balance sheet. Conceivably, AB could also do very well as autonomous driving becomes a reality.
No, the reason I’ve sold is purely down to the valuation. Despite only growing revenue by 5% in the first half of FY24, the stock still trades at an eye-watering 31 times earnings at the time of writing. In the absence of a near-term catalyst for trading to improve, I can’t see the share price moving significantly higher for a while.
Whether I come to regret my decision remains to be seen. As things stand, however, I can see far better value elsewhere in the market.
Paul Summers has no position in AB Dynamics.
Close Brothers Group
What it does: Close Brothers is a UK merchant bank providing motor finance, business lending and asset management services.
By Roland Head. I recently sold all of my shares in Close Brothers Group (LSE: CBG). The bank’s share price has slumped this year as a result of the UK financial regulator’s investigation into historic motor finance commission payments.
The outcome of this investigation and any potential liability is not yet known, but Close Brothers has already suspended its dividend as part of a plan to raise £400m in additional surplus capital.
While I believe the company will recover from the impact of this investigation, I think it may take longer than expected.
Looking further ahead, I wonder if regulatory changes will put pressure on the future profitability of motor lending, which is a major part of the bank’s loan book.
After this year’s falls, I think the business might be cheap at current levels. However, increased uncertainty and the lack of a dividend mean that it’s no longer a good fit for my portfolio.
Roland Head does not own shares in Close Brothers Group.
Greencore
What it does: Greencore is a leading international manufacturer of convenience foods.
By Alan Oscroft. I sold my shares in Greencore (LSE: GNC), and it might sound like it’s for a dumb reason.
Essentially, it’s because I can’t remember why I bought them.
And now I look again, I can’t make a good enough case to buy them. And if I wouldn’t buy a stock, I don’t think I should hold it. Especially when I see others I like better.
The Greencore valuation isn’t so bad. But a forecast price-to-earnings (P/E) ratio for 2024 of 14 doesn’t look that cheap, and I’d say it doesn’t offer much safety margin.
And the dividend yield of around 1.5% doesn’t exactly make it look like a top income stock.
Admittedly, forecasts would lift the dividend above 3% by 2026, and would drop the P/E to 10. But when there are plenty of FTSE 100 yields of 6% and more, it doesn’t appeal.
So, now the stock has recovered a bit, it was time for me to find somewhere else for the money.
Alan Oscroft has no position in Greencore.
ITV
What it does: ITV is a broadcaster operating terrestrial and digital channels in the UK and also provides production facilities and services.
Sometimes even a cheap-looking share can get cheaper. ITV (LSE: ITV) had long looked cheap to me. But as it fell to around 56p per share in February I added to my existing holding.
Annual results including a maintained dividend and share buyback helped lift the shares up to 75p over the following months.
I decided to sell a few of my shares to lock in some profits. I continue to hold most of them as I still think the business is undervalued considering its profitability, extensive audience and ongoing high demand for production facilities.
So why did I sell some of my shares?
Potential is one thing but tying money up for years on end has a cost. ITV does face real risks, from a traditional business in long-term decline to increasing digital competition. By taking advantage of a post-results jump in the share price, I was able to turn some paper gains into actual ones.
Christopher Ruane owns shares in ITV.
Supermarket Income REIT
What it does: Supermarket Income REIT owns and leases retail properties. Around 75% of its rent comes from Tesco and Sainsbury’s.
By Stephen Wright. I’ve recently made the decision to sell my stake in Supermarket Income REIT (LSE:SUPR). There are a couple of reasons for this.
Chief among them is the firm’s rapidly growing share count. The number of shares outstanding has increased tenfold since 2018.
That’s not a good thing – it means each share’s ownership in the company has decreased by 90%. And as an investor, I want to own more of a business over time, not less.
To some extent this is understandable. REITs often use equity as a means of financing, so I’m not surprised the share count has gone up.
I haven’t sold the stock just because the share count has increased, though. I’ve moved on because of how much it’s increased.
Over the same time period, Primary Health Properties – another UK REIT – has seen its share count roughly double. That’s much less dramatic, which is why I’ve moved my cash to there.
Stephen Wright owns shares in Primary Health Properties.
