Question: In Buy, Sell, Hold – what the brokers say on 8 May 2017, Macquarie downgraded Woolworths from Neutral to Sell. What’s your view, please? I hold a large portion of my portfolio 2341 shares/21%, with a cost base price of $2.45.
Should I sell some or do the dividends make it a good hold?
Answer (by Paul Rickard): The market sees Woolworths as a recovery stock, but I think it has had a large part of the run up. I think it is rather expensive – trading on a forecast multiple of 25.1 times FY17 earnings, 21.8 times FY18 earnings. Forecast dividend yield of 2.7% and 3.2% for FY18.
So, I am in the “reduce” camp.
The question you may want to ask is: what are you going to replace it with?
Question: I would like your opinion on Vocus Communications (VOC). I was a long-time shareholder of M2 Communications, which recently merged with Vocus. I watched the share price get hammered and I’m not sure if it’s a structural issue with the company (massive debt and reduced margins), or whether it’s short-term indigestion from the mergers. I hate to sell companies that have had a massive fall, but I don’t want to hang on to it if it’s no longer the top quality company I originally bought. It currently makes up 7.5% of my portfolio, down from around 16%. Your thoughts are appreciated.
Answer (by Paul Rickard): Vocus has lost any shred of credibility it once had, so much so that every major analyst now has a Neutral or Sell rating (no Buys).
It will take a long time to rebuild market trust.
Analysts currently have a target price of $2.72.
I suppose I would be a reluctant holder, but don’t expect a massive or speedy recovery. There is an old adage in markets: “your first loss is your best loss”. Interestingly, that seems to work about eight out of 10 times.
If you need some clear air, sell some to get your weight down – otherwise, hang on and hope!
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