17 shares for the future

January is, in one respect, the slackest month in my investing year. Although many companies' financial years coincide with the calendar year, few of them have pulled all the information together and published their results by the end of the following month.

In at least two other respects, it's been busy. The stockmarket suffered a reversal. I know when the market sinks because colleagues tell me, and the decision engine takes on a different complexion.

Unlike the red I imagine on most investors' screens, the decision engine turns a calming shade of green as more of the stable, financially strong companies I favour trade at attractive valuations. I created the decision engine to make it easier for myself to add shares to the Share Sleuth portfolio when they are cheap, and remove them when they are expensive.

This is not easy when you are surrounded by cues to do the opposite, panic-sell, for example, when red arrows light up on portfolios and watchlists, and alarmist stories about falling prices make the headlines. The two can combine to shake investors out of good companies, which is unhelpful if you planned to invest for the long-term and the shares remain good long-term prospects.

Sell-offs create opportunities, which is why the decision engine has turned green and one reason why I have been busy. The best opportunities, the shares for the future, are the shares ranked most highly. This month there are 17 out of the 49 shares I currently follow. If I were to start a new portfolio today, a portfolio I wouldn't expect to cash in for a decade or more, I would consider first the companies from the top of this list, and work down:

As usual, you can find out more about the companies mentioned in this article by clicking on their names.

I've also been busy, because time saved making sense of new company results is time gained to investigate companies more thoroughly, to look back into the past, and imagine the future. I chose to focus on Victrex, the highest-ranked share covered by the decision engine that is not represented in the Share Sleuth portfolio, ITE, Dewhurst and Treatt. Although I have yet to write up my notes, I also attended AGMs at ITE and Dewhurst.

Victrex has shifted strategy because it is in danger of outgrowing its existing market. It manufactures high performance thermoplastics, polymers strong, durable and light enough to replace metal in aeroplanes, subsea pipes, human surgical implants and many other applications. To grow, Victrex must develop new products itself, as well as supplying other manufacturers with polymer as it has done, largely, in the past. Although a change of strategy is risky, Victrex has considerable experience and a market leading position to build on. It's no longer unrepresented in the Share Sleuth portfolio, I added the shares on 26 January.

It may be churlish comparing ITE to a cockroach, because cockroaches have an unpleasant reputation, but ITE is attracted to dark places - the bulk of the trade shows it puts on are in Russia and Central Asia and, while sales in those oil-dependent and geopolitically sensitive economies have fallen dramatically, the company is surviving, perhaps cockroach-like.

Its finances are more stressed than they were before, but profitability is holding up and, through the acquisition of trade shows in other emerging markets as well as the decline of its own, it's less dependent on Russia than it was.

Dewhurst warned profit in 2016 will be significantly below 2015 on the morning of its AGM, making a mockery of my headline: "fundamentals of stability". Analysing a decade of segmental data failed to unravel the mystery of Dewhurst's decline in profitability from very good to good. Maybe it's just cyclical.

Flavour processor and supplier Treatt, like Victrex, is getting closer to its end customers by inventing novel flavours for the drinks industry. I think its recent results show the strategy is paying off.

Last month, I anticipated reappraising Goodwin. Like ITE, sales at Goodwin have fallen sharply due to the decline of the oil price, and it's diversifying. Unlike ITE, at Goodwin, which manufactures check valves used in pipelines, the impact on return on capital is greater.

While ITE is reducing the size of some of its exhibitions, Goodwin has relatively high fixed costs (factories and machines), and it's still investing in them. Even so, the company remained profitable at its half-year in December and I have considerable faith in management. Meanwhile, a low market valuation has sent Goodwin to the top of the decision engine's ranking.

The decision engine is a giant collection of spreadsheets that spew out financial ratios, incorporate my own judgements and rank the companies I follow. I've added five companies since the last update, although none of them are currently ranked highly enough to join the shares for the future mostly because, despite the sell off, they still trade on high market valuations. They are: Topps Tiles, Porvair, SThree, Unilever and RWS.

Mid-ranked Games Workshop continues to baffle me. Half-year results gave no adequate explanation for a big decline in sales of fantasy miniatures. I'm afraid the company isn't facing up to intensifying competition, at least publicly.

The month and year opened, predictably perhaps, with thoughts on productivity, and I also took time out from stockpicking to ponder a mechanical trading strategy that is testing the nerve of its human operator.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.