Opportunists should plug into Dixons

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The Independent Online

If expensive summer holidays have left you out of pocket, Dixons could be a quick, but risky, way of recouping some of your losses.

If expensive summer holidays have left you out of pocket, Dixons could be a quick, but risky, way of recouping some of your losses.

The retail sector has not been sparkling recently, and Dixons shares have slid steadily to 242p, close to their eight-month low. Caution over the stock seems quite justified, but a look back at the group's share-price history suggests that now might be a cunning time to buy.

The investment case is simple. Most of the time, the market thinks of Dixons as a fairly decent retail play, and accordingly rates the shares somewhere between 250p and 300p. But every couple of months, the City remembers that the company has a huge stake in Freeserve, assumes it will soon be sold off, and pumps the shares to around 380p.

Freeserve is worth just over £1bn. Therefore, if it were sold, Dixons' 80 per cent cut would look very nice on the balance sheet. Unfortunately, the Freeserve sale speculation never lasts very long. Both T-Online and Energis have been placed in the frame, but subsequently dismissed.

But memories are short, and the process of hiking Dixons shares on the back of Freeserve talk has turned into a fairly dependable cycle. All that's needed is something to start City chins wagging, and the next couple of weeks might provide that.

This week, the FT-SE authorities perform their quarterly reshuffle of the FT-SE 100 index, and Freeserve is a prime candidate for demotion. As it loses the coverage of various tracker funds, its value will slip further and the business will once again look like a cheap target for a foreign buyer.

Cue another temporary spike in the Dixons price that could, on past form, reap a tidy reward. If everything pans out as described, watch the Dixons price very closely: should it climb much over 360p, think about banking the profit.

Bolt from Baltimore

Technology stocks came back into fashion last week as though they had never gone away. Wednesday's strong results from CMG, the computer services group, may have provided the immediate trigger - but, in reality, investors have spent all summer itching to pull it. Among this column's choices to benefit was Baltimore, the internet security group, which is showing more than a 40 per cent return since being tipped here just three weeks ago at 642p. Speculation of a bid from Microsoft, which has helped propel Baltimore, should be treated with caution. These stocks have a habit of falling as fast, and as far, as they rise. At Friday's close of 901p, investors should take the money and run.