No Pain, No Gain: 'The stock market is capable of emphatic misjudgements'

The no pain, no gain portfolio has endured a bumpy, not to say bruising, ride with Stagecoach. I climbed aboard the bus and train group in the summer of 2000, paying 80p a share. The stock market, I felt, was being far too harsh and the shares, once comfortably above 250p, were heavily oversold. I was wrong - Stagecoach was getting itself into a spectacular expansion-fuelled mess.

The no pain, no gain portfolio has endured a bumpy, not to say bruising, ride with Stagecoach. I climbed aboard the bus and train group in the summer of 2000, paying 80p a share. The stock market, I felt, was being far too harsh and the shares, once comfortably above 250p, were heavily oversold. I was wrong - Stagecoach was getting itself into a spectacular expansion-fuelled mess.

The shares were in reverse for an uncomfortably long time, hitting a shuddering 10p low in October 2002. Naturally, there was a strong temptation to accept abject failure and sell. Although my first assessment was hopelessly wrong, I could not avoid the impression that the stock market was again making a huge mistake. And with so much of my £5,000 investment already down the proverbial drain, I felt the best policy was to cross my fingers and stick with the shares. Indeed, I suspected there was a strong case for averaging.

Stagecoach went on to prove that the stock market sometimes rewards patience and is capable of surprisingly emphatic misjudgements. It clearly over-reacted to Stagecoach's problems. Since hitting their low point, the shares have motored ahead and are now around 90p, looking to break the 100p barrier. I am relieved. When the shares were in the dumps, a few frightening stories were flying around. Some observers muttered about the company heading for the corporate graveyard. Certainly, banking agreements were in danger of being breached. Then Brian Souter, the man who founded the company with his sister, Ann Gloag, returned to take over as chief executive and instituted a recovery programme. He took the axe to the group's ill-fated American expansion, retaining a largely profitable rump. Other overseas bits and pieces have been sold, including this week's unexpected sale of part of a Hong Kong investment.

Mr Souter also took the view the shares were undervalued. He picked up some at 31p and clearly feels the recovery still has some way to go - buying more at 79p. At the interim stage, the group recorded a pre-tax profit of £44.8m, an impressive performance when viewed against a corresponding loss of £524.1m. Disposals may again make an impact on full-year profits, but around £100m should be attainable.

I have had my doubts about Stagecoach but Glisten, a little confectionery maker recruited in April last year, has so far provided a relaxed and enjoyable ride. The shares have not fallen below my 114p buying price. This week, they reached 195p after a period of relative weakness following the £6.5m take over of a company called F Fravigar, a maker of old-fashioned sweets, such as wine gums, jelly beans and boiled confectionery. It is Glisten's first major deal since its flotation 18 months ago.

The Fravigar lines should blend nicely, offering opportunities for cross selling, with the chocolate products already in the Glisten range. The merger should provide cost-cutting opportunities and there is unused capacity at the wine-gum maker's Skegness factory in Lincolnshire. Glisten intends to grow in niche sectors of the confectionery and food industries, and more deals, probably involving unquoted companies, are no doubt being lined up.

The share tipster Tom Winnifrith, on his website t1ps.com, believes the enlarged group should roll out profits of £1.8m this year and £2.6m next. He reckons the shares should nudge 265p in the next 18 months. I think he is right.

Galliford Try, another portfolio constituent, has also been tipped on the net. Shares of the construction and housebuilding group were purchased in May 1999 at 20p. They have given me a few headaches, making their last journey into negative territory last year. Yet, this week, they almost brushed 50p. A couple of contract wins, worth some £150m, helped sentiment but a decision to turn down a signalled 54p-a-share offer from Rok Property Solutions left many followers, including yours truly, unimpressed. But the company seems to be winning fans. Benjamin Cooper of Small Company Selector, alighted on Galliford, suggesting the shares were a buy. He believes they enjoy a sensible rating - for a housebuilder. But the price, he feels, makes little allowance for the recovery apparently under way at the underperforming construction operation. He embraces the stockbroker Arbuthnot's profit forecasts of £20m for this year and £22.5m for next. Rok's attention has, to some degree, put Galliford in play, and most observers take the view that it would take a bid of at least 60p a share to gain the support of its board.

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