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In my last post, I was pleased to see TGISVP continue to deliver significant out-performance vs. the ISEQ benchmark. Early days yet: This could be blind luck, but hopefully it’s derived from a robust analytical process that clearly identifies over/under-valued shares. Which naturally demands a bit of a refresh…

I haven’t actually felt compelled to perform any Irish share revaluations since my TGISVP X post, even for stocks I hold. Personally, I’m pleased with this – I’m v comfortable with my Irish holdings, I believe my valuations are robust, and there’s been no unexpected news-flow. In light of my current Irish portfolio allocation (16%), and actual stocks I hold, I’d be reluctant to add another Irish share. This doesn’t mean forgetting the rest, of course! It does mean I can just watch out for interesting price drops, rather than agonize over constantly refreshing valuations.

And if a stock and/or its upside potential really starts to become interesting, only then do I need to think about a detailed valuation refresh. Of course, if that works, then it all becomes more difficult… Is the stock safe & cheap enough to consider increasing my Irish allocation, or to sell an existing holding to fund this possible new purchase?! Hmm…

From a blog perspective, I’m also perfectly comfortable with this…inactivity. As I’ve mentioned before, any decent intrinsic valuation should (usually) provide a good benchmark of value for at least 6-12 mths, or more. [In fact, if you significantly change your stock valuations at the mere drop of a hat, you may want to take a closer/harder look at your valuation process & investing habits…] I’m also reluctant to provide any list that might suggest you just plunge in & buy a few of them asap – uhoh, not my intention at all..! I’m simply trying to provide a list of interesting over/under-valued Irish shares to research further. Highlighting valuations haven’t been refreshed since Jan-March is a good reminder to always Do Your Own Research before buying anything! Here’s some notes/caveats before we continue:

– Any portfolio holding is bolded. Market prices are as of end-June, while target prices/valuations are the latest provided (sometime between Jan & end-March). FX rates have been updated. 4 shares that de-listed in H1 have been eliminated.

– Always remember any share offering 75-100%+ upside potential is probably that much hairier & riskier!

– Yes, on occasion, valuations really do change abruptly & significantly…

– Finally, just because I calculate high upside potential doesn’t mean I’d actually recommend or dream of buying a particular share! [See my recent comments on Ovoca Gold (OVG:LN)]

This last point is most important. The problem with any list, or stock-screen, is that you’re forced to look at stocks through a v narrow prism. In this particular instance, it’s upside potential based on target price/valuation vs. current market price. Yes, sure, that’s what investing’s all about – but you need a much more holistic & in-depth perspective of a stock before you’d actually buy it. If I can capture some of that in my valuation, I certainly will try, but sometimes it’s impossible – the risks/outcomes for some stocks are far too unknown/binary.

Let’s put it another way – if you were crossing a river, and I told you the average depth was 2 feet, you’d probably feel pretty comfortable, yes? But I said average – how comfortable would you still feel in the 16 foot section of the river..?! And that’s the problem with any single measure, or two – they never tell you enough, especially about risk, which can sometimes be fatal.

More generally, I think this is often where bubbles come from – en-masse, investors suddenly lock onto one market/stock attribute, at the expense of all others… It’s amazing in the past dozen years how the solution for each bubble inevitably leads to the next bubble (deliberate, or unintentional?!). The current financial repression (and inevitable inflation) is the only de-leveraging strategy government(s) consider  palatable, but of course it sows the seeds of the next bubble. Call it what you will – I call it the great dividend/income bubble.

But this is just investors again blindly seeking a return ON principal, except this time they’re not brave enough to chase growth. Not to worry, the brokers, the fund managers, the ever compliant media (funded by their financial sector advertisers), and ultimately the companies themselves have the solution – that is, sell investors exactly what they think they really want. Dividends! Sigh… It’s been interesting to see quite a few UK bloggers discuss this recently, but like all bubbles this one’s firmly centred on the US.

I suspect this dividend/income bubble has some years to run, but I’m amazed to already see Ponzi-like behaviour ‘bubbling up’ in the US (un)listed REIT/MLP sector. [Disagree? When companies have to continually fund some/all of their dividend payments from existing shareholder capital, loans & new stock issuance, rather than cash earnings, how would you describe it?!] Eventually, investors will wake up & finally worry about return OF principal, and by then it’s too late, of course – by definition, that’s the sound of the bubble bursting..!

Well, despite all that…here’s the current top & bottom of TGISVP charts!:

Petroneft Resources (PTR:LN) is only a minor holding for me – the fact my first big Irish holding, Total Produce (TOT:ID/LN), is in 9th place is hopefully another illustration I don’t choose stocks simply on upside potential – no matter how attractive it is! Again, if any of these stocks strike your fancy, DYOR!

If you own any of these stocks, for example, I recommend you think long & hard about whether you want to keep owning them… Of course, as with the Top 15 Stocks, this requires you do your own research. Oh, who am I kidding..?! In most instances, we’re talking about companies with no tangible assets, no earnings, no proved/probable reserves or resources, negative cash-flows and a brace of managers doing their best to piss your money away… Sell those mothers! In fact, it’s worth returning to this chart from my last post:

TGISVP H1 2012 Top 10 Losers:

I’m bemused to see: i) 40% of these H1 2012 Top 10 Losers were actually in my original bottom 10 of TGISVP – out of 70+ shares, not a bad forecast at all, and ii) 60% of these H1 2012 Top 10 Losers remain in the new Bottom 15 Stocks chart above, despite their losses YTD! Just goes to prove some shares are never worth it at any price. Reminds me of that dumb old question: ‘At this cheap a price, how much can you lose?!‘ Er…100%?!

btw Here’s the full file I used for this post – no cells are locked, so please feel free to update share prices & revise or even completely alter valuations. If you’re thinking of actually buying one or two of these shares, and want to compare/discuss fresh valuations, don’t hesitate to email me (see Contact) and I’ll do my best to respond:

The Great Irish Share Valuation Project (end-Jun-12)     (xlsx file)

The Great Irish Share Valuation Project (end-Jun-12)     (xls file)