The Investment Column: Oversold Southern Cross should head north

Our view: Buy

Share price: 150p (+8p)

Investors in the care homes group Southern Cross Healthcare have had a rotten time of it in recent months. The group issued a profits warning in June, just six weeks after it said that it was "well placed to make further progress".

However – and investors who saw their holding plunge by nearly 200p at the time will probably not want to hear it – now might be the time to get back into the stock.

The group's problems are twofold: the previous private equity owners of the UK's biggest care home group did their asset-stripping best and remodelled it as an operating company, selling off its care homes and then leasing them back. As property prices started to fall earlier this year, Southern Cross was suddenly unable to get back the amount it had paid out for the property. Secondly, the reputation of the management team took a battering on the profits warning, with watchers at Nomura Code, describing it as an "indictment on management".

The clouds, however, are starting to lift. The group is beginning to offload its property and announced yesterday it has raised £20.7m from a new sale-and-leaseback deal. The group sold off another £31.1m worth of freeholds last week and says that it expects to flog a further 13 in the coming weeks, at book value. Also, the chief executive Bill Colvin will step down by the end of the year and he will not receive a payoff.

Some are still concerned about the group: analysts at Investec say that Mr Colvin's departure means that shareholders are in for some "short-term uncertainty", but, nonetheless, investors can expect the shares to reach 200p.

Indeed, Southern Cross is cheap. Trading on a price earnings ratio of 7.3 times, the group comes at a serious discount to some of its peers: Synergy, the supplier of healthcare services, trades at 18.5 times, for example.

The truth is that Southern Cross is starting to fix its problems, and, although well deserved, the sell-off in the stock after the profits warning now looks a tad overdone. Buy.

McBride

Our view: Hold

Share price: 108p (-2p)

There are lots of groups struggling at the moment, especially as input costs are soaring.

McBride, which makes among other things own-label personal care products for the supermarkets, is one of those to have felt the strain. The group depends on oil for many of its products, and, with the black stuff hitting $147 a barrel earlier this year, the company has suffered: full-year profits will fall by 30 per cent, the group said yesterday.

McBride, however, is doing what it can to offset the problems. The UK workforce of 2,500 will be cut by 10 per cent and the group is moving its personal care production to a new facility in St Helens. All told, chief executive Miles Roberts expects a saving of more than £1m this year alone.

The other good news for McBride is the economics are with them. As consumers feel more financial hardship, they tend to downgrade from branded products and move to supermarkets' own brands, many of which are made by the group. What is more, shoppers are increasingly using the likes of cheaper stores like Aldi, which, again, is supplied by McBride.

Despite all this good news, and the fact that the price of oil is coming down for the moment, the company is not a buy. Firstly, input costs are still high, and, more important, they are volatile. Mr Roberts understandably argues that his company could not have anticipated oil at $147 a barrel, but there is nothing to stop raw material prices spiking again.

Perhaps more pertinent is the fact that the group is expensive. Mr Roberts concedes that, trading on about 10 times earnings, the shares are "slightly above" the rest of the market.

McBride is a good company, and the theory suggests that it is as well placed as possible to perform in what is now likely to be a recession. Investments should be safe, but do not expect fireworks. Hold.

Metrodome

Our view: Cautious hold

Share price: 2.25p (-0.25p)

The chief executive of the film distributor Metrodome, Peter Urie, spent most of yesterday on his way to the Toronto film festival, no doubt to try to drum up a bit of business.

The group is becoming fairly adept at doing just that, and yesterday posted its interim results showing pre-tax profits (the first for some time) of £131,000, as opposed to a £225,000 loss this time last year – not a bad performance for a group with a market capitalisation of just a touch over £3m.

However, investors thinking that a flutter on the group may be a good idea should think again. Even the company says that the "second half is unlikely to show any growth on the first half, as has been the case in previous years. Trading conditions have worsened in recent weeks and the group is unlikely to repeat the same strong performance as in the second half of 2007."

Investors have seen the stock rise 11 per cent in the past month, but, sadly, that is likely to be it for a while. Cautious hold.