Time to dump IT stocks for ye olde blue chips

Non-technology stocks, shunned and devalued, are looking irresistible
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The Independent Online

The snag to buying shares is that you need money. However, this can be a blessing in disguise because, unless you have a bottomless pit of cash into which you can dip whenever you spot a fresh opportunity, it means you must sell shares to buy new ones. And sometimes, when you detect a sea change in the marketplace, it is time to contemplate a reappraisal of your portfolio.

The snag to buying shares is that you need money. However, this can be a blessing in disguise because, unless you have a bottomless pit of cash into which you can dip whenever you spot a fresh opportunity, it means you must sell shares to buy new ones. And sometimes, when you detect a sea change in the marketplace, it is time to contemplate a reappraisal of your portfolio.

This week, in common I suspect with many serious investors, I have been considering fairly dramatic alterations to the structure of my portfolio and indeed I have taken the first steps towards altering the balance.

I have sold a significant number of my technology and Internet stocks. Let me quickly point out that this is not because I believe bubbles are bursting or I am concerned that I hold a bunch of dotty dotcoms. On the contrary, I believe that there is no bubble to burst and that there is considerable strength in depth in the TechMARK sector.

My motivation is quite simple - I can't afford to ignore the bargains that have been created in the traditional market by the flight to new technology.

Since the autumn of last year money has been siphoned away from the more conventional sectors to feed the new IT cuckoo. Private investors have been enticed by the price explosion in computer-based stocks. Institutions have abandoned their safety-first stance and followed suit, scared that their supporters will be angry at missing out on the inventions-and-ideas boom.

The mass movement has left the value stocks gasping for funds. Increasing turnover and profit figures have seemingly counted for nothing. Unless those two magic words, Internet and technology, are somewhere in the company's statement of intent, the share price has gone down.

However, it has begun to dawn on investors that another very important magic word, profit, is missing from the statements made by many of the new businesses. Without profit, earnings-per-share is a non-existent statistic and share- holders' dividends can't be paid.

In my opinion therefore this is the time to examine your technology holdings carefully and if you cannot identify a move towards profit, think carefully about selling. If you decide to sell, why not consider buying the amazing bargains now on offer from the Big Friendless Giants? Let me suggest a few for your microscope.

The banks must be bargain basement value at the moment. Mr. Cruickshank wagged a warning finger at them this week and we feared that very nice man - that very, very nice man - Gordon Brown would tread heavily upon them. It didn't happen. Banks will now pay lip service to change, offer a few crumbs like free cashpoint usage, and continue to coin it in.

Money goes to money. To illustrate the point, any single one of the Big Three banks makes more profit than the whole of the British supermarket industry put together.

In the banking sector I like Alliance and Leicester and Lloyds TSB. Both stocks have plummeted this year.

A & L is interesting, not least because the directors have been buying shares and also A & L itself is one of the few banks on the share buy-back trail. Takeover? - it's an obvious target and this sort of activity is one of the early signs. With a P/E of less than 9 this must be a steal.

Lloyds is reputed to be the best managed business in the sector and it looks as though their Internet arm is working at last. There is an even balance between the excellent profits generated by their activities in retail banking, mortgages, insurance, wholesale and international banking.

The bank also seems to be striving for a higher profile. I noted that when the Cruickshank report came out the Lloyds chief executive was the banking czar chosen by the BBC to put the industry's case on the lunchtime news bulletin.

Now let's turn our attention to the restaurants, pubs and breweries sector. In recent months it has been completely out of favour, but why? Look around in your locality. All the pubs and restaurants are packed and the days of the nice little cheap place for a good night out have gone.

Two of the bigger players in this sector appeal to me. Whitbread and Scottish & Newcastle have both suffered a halving of their share prices since the middle of last year, but examine their business records and they haven't put a foot wrong.

Despite being kicked out of the FTSE 100 this month Whitbread is steaming ahead. The company is on track to deliver profits of £382 million this year and there's a dividend yield of over 6%. The TGI Friday restaurant concept is rolling out well and this month they added 10 Greene King outlets to it. Here's a strong company with an undervalued share price.

The same can be said of S & N which this week forged a link with the giant French food company Danone, controller of substantial beer interests in France, Belgium and Italy.

The Edinburgh-based company is the driver in the alliance and this considerably strengthens the company's foothold in Europe. It also adds a new dimension to the S & N range because the French beers include Kronenbourg 1664 and Peroni, unisex lagers that go down well with teens and twenties.

And what about Boots? In the summer of '98 the share price of this versatile retailer touched £10.70. Almost two years later and it has halved, yet in that time turnover, pretax profits and earnings-per-share have all gone steadily up. Far from ignoring the competition from the Internet, it has joined it and plans to become Britain's premier online health brand.

This boycott of large public companies with an impressive track record cannot go on. Sense will prevail and I forecast a swing away from promising companies to proven ones.

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