IN THIS ISSUE:

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• Share tipping newsletters are chock full of profit opportunities

• A quick-fire market recovery is long overdue!

• All about cars and money 

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From Gareth Stokes, Editor, The Investor’s Digest 

Dear reader,

I can remember my first transaction on the JSE as if it were yesterday… Someone had told my Dad about a mining company that seemed worth a punt. My Dad shared the information with me and we decided to purchase a few hundred shares. Our joint venture was quite successful and I was hooked on the excitement of stock markets and investing from that day on!

One of the most interesting observations I can make about my long-term trading history is how my idea generators have changed over time. When I started trading I used to get tips from colleagues and friends. I would then phone my broker to ask him what he thought of a particular opportunity – often purchasing on his “say so” alone.

Over time I’ve left these trading "crutches" by the wayside. After changing jobs a couple of times I lost touch with most of my stock market "buddies". And with the advent of online share trading I stopped relying on my broker too…

Nowadays I get most of my share ideas from publications in the FSPInvest universe and from various investment presentations I attend. My buying process begins with the companies I read about in the pages of Red Hot Penny Shares, South African Investor and in emails from Stockmarket Sleuth and others. 

But I always pay closest attention to the outstanding long-term opportunities recommended by the legendary Wall Street gurus in The Investor’s Digest.

Bigger is better as SA equities look set for a second-half resurrection!

The Investor’s Digest is one of the best places to find iron-clad, long-term investment opportunities. The reason is most of the companies identified by investment legends like Warren Buffett are in the mid to large-cap market. And it’s these shares that I’m favouring for a serious recovery in the second half of 2011.

Why?

The reason is two-fold. First, I expect the global economy to gain traction after a long period of sluggish post-recession growth. And second, I expect local companies to finally weigh in with decent earnings numbers.

An assessment of stock market returns year-to-date suggests a steep upward correction is long overdue.

There are simply too many locally-listed blue chips performing well below their potential at the moment.

And the trick is going to be to get into the right sector to profit. I can think of a number of sectors I’d be avoiding right now, including the platinum and construction sectors.

I also think retailers are slightly expensive right now – and although long-term buyers of the likes of Shoprite and Pick ‘n Pay won’t be disappointed, there’s not much growth left on the table for the remainder of this year.

So we’re left with finding our profit opportunities among banking, financial and industrial shares… Now the company I like has some exposure in each of these sectors. In fact, it depends almost entirely on a strong banking sector (through credit extension) for its revenues.

The Top 40 company I’m keen on today!

Come to think of it there are a number of Top 40 shares I’d be happy to invest in to take advantage of a solid second half of 2011. I’ve mentioned a number of these companies in previous MoneyMornings, including the likes of British American Tobacco (twice), Naspers-N, SAB Miller, Sasol and MTN (twice)…

But today’s ‘pick’ is in a totally different space.

The company I’m talking about is in the big league, with R31bn in revenues for the half-year to 31 December 2010. And it's among South Africa’s top diversified industrial services and retail groups, with activities spanning logistics, car rental, tourism, financial services, vehicle distribution and retail.

The group has business interests in South Africa, Africa, Europe and Australia. But it's the European business that caught my eye...

By now you should have worked out that I’m talking about Imperial Holdings (JSE: IPL).

Before we take a closer look at its European business you might consider these amazing statistics from the group’s website. Imperial employs more than 34,000 people, has more than 5,500 trucks in its logistics fleets worldwide, and owns 500 barges in Germany! The company’s South African transport fleet travelled more than 419 million km last year…


From a profit perspective, one in every six vehicles and one in every three rental car transactions concluded locally go through the group!

Imperial’s international logistics operation is perfectly positioned to benefit from the buoyant German economy. And in the latest interim results, revenue - reported in Euro - grew at each of the main business units.

The group owns a number of European subsidiaries including Gillhuber (in-plant logistics), Imperial Reederei (an inland waterway business) and Panopa (a parts distribution and in-plant logistics business servicing the automotive and steel industries. I’m sure you’ll agree these businesses will power ahead as Germany leads Euro-Zone growth post recession.

The bulk of Imperial’s revenue is generated from its South African Automotive Distributorships (R11.722bn) and Automotive Retail division (R8.522bn), though these outfits contribute minimally to operating profit (R928m and R219m respectively) due to tight margins.

I reckon revenue from these divisions will be strong in the second half, but it will be up to the International Logistics, South African Logistics and other divisions to drive operating profit through FY2011 and beyond.

At its current share price (around R122) Imperial is trading on a forward price-to-earnings ratio of 10.62 times and offers a 3.91% dividend yield. I’m happy to accumulate the share at up to R125 on a three-year view.

I’ll be back with another instalment of MoneyMorning on 14 July 2011.

Until then, let the profits roll,

Gareth Stokes
Editor, The Investor’s Digest