With 2008 looking like it could be a volatile year to say the least, with sectors like Banking, Financial, Construction, Household and Retail all falling. I thought now would be a good time to bounce some views around about companies that have fallen, and may offer an excellent Contrarian Investment. As always it will be about timing, and trying to identify companies that have fallen too far, and have strong fundamentals. ie will not going belly up.

I'm sure that with so many investors with various expertise imputing, we can all help each other to not making to many costly errors. And make some tasty profits, in a year which could throw up some very interesting valuations.

I will kick it off with a company called Cattles CTT. see next thread.

Over a number of years I have been in and out of TPT and done quite well, it's a different story now with the sector getting hammered, but TPT have a good record and I have been buying on a monthly basis and will continue for a while yet, this appears to me anyway to be a good way to get a holding in a co. in an out of favour sector, without buying outright at too high a price.
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Had a look at TPT today and the currenet year pe at 9.4 and the future per look good at 8.4 and 7.74. Nice yield at 8.22 even though cover is a little low at 1.45. I noticed they had a £6.7m interest charge in last finals. I couldn't see the borrowing total. Any idea of the total.

TPT borrowings as at 30/09/07 £95million company has negative net worth of £54million.

Thanks Halifax

Barretts Developement (bdev) is a company I am keeping an eye on, the shares have bombed from over 12 one year ago to 340 yesterday, One week back they were 440, they seem to be in free fall.

The current PE is 3.5 and forward PE 3.9
Yield is 8% and covered 3.5%

The price could still fall further because markets always over react in both directions. If they go down to 2.00 I could be tempted.

BDEV is a share I bought at 656 as had fell 50% at the time which I thought was a reasonable correction. Im still holding but they are falling at an increasing rate and I have given up trying to call the bottom. The candlesticks seemed to point to a congestion area around 440 - 460 about 2 weeks ago then they just fell off another cliff. Im not tempted to add to my position at this time as the numbers around yield, PE and SP stopped making sense a long time a ago. Moral of the story SET A STOP LOSS.

I nearly always a sopp/loss of about 20%, but when I am trying to buy out of favour stock in a falling market, I feel that I can never get in at the bottom, so would always be stop/lossed out. The only thing I could do is to hold for the long term about 2.5 years for a turnaround.

As long as the company is sound financially, I should be OK. As said in a normal market I would always use a stop/loss, but this is far from a normal market.

Spitfire - another builder to watch imho is Bovis (BVS) which I made small money on 3 years ago, failing to wait for the big rise to 1000p. Now sitting at under 500p after recent sharp falls with a div yield of 7% to Dec 2007, rising to 7.9% this year. I think they are right in the sector likely to benefit from government initiativs to build more affordable housing to counteract the subprime/credit squeeze effects. Great well run company reflecting market sentiment (and a good dose of reality) but there are a number of experts (Fidelity chap - whatsisname, about to retire) suggesting might be time to take a nibble at out of favour building companies.

Interesting trading update from Bovis today which looked positive at first glance with strong profit margins. But they also reported the foward order book down 19% compared with Redrow down 3% and Bellways down 2%. Even though I have mainly been looking at Barretts so far, I will over the next few days have to compare all the malor builders and read the latest Trading updates.

In shares this week Lesie Kent director of cororate sales at JM Capital Markets says, the market sell stance is way overcooked. And the article concluded with Buys on Persimmon, Redrow and Bovis and a Hold on Barratt.

Well, the market seemed to like BVS's update and bounced upn 50p - geddin quick, mate!
No advice intended.

Even Barrett was 33p up today, but I will bid time, unfortunately there will be plenty of bad news to come for sector.

Another sector for contrarian investors is banks, RBS have fallen most with a 7% dividend rate. In the financial crises in 1990 the American banks lost 50% value in 9 months, with p/bv in alot of cases below 60% or 0.6.

At the moment the UK banks I believe have the following p/bv, my calculations so please correct me if wrong. Lloyds = 2.16, RBS =1.1, Barclays = 1.63, HSBC = 1.71.
Still think we could see some more corrections short term, and could be some more writedowns.

Would like to buy into RBS for long term, the only question is when and at what price.

Current bank share prices are anticipating 2008 eanings will be decimated by the need for massive provisions relating to derrivative trading and a steep rise in provisions for bad debts as the eonomy slows. The jury will be out on this until the banks start reporting early next month. Look at the existing dividend cover and try to calculate by how much bank profits have to fall in %age terms before the existing dividend is threatened.

One of the better dividend cover is RBS with 2.4, but the concern is the acquisition of ABN Ambro which had the largest loans of low quality at risk of the European Banks, estimated at 27 billion. The problem is nobody knows what percentage may never be repaid.

I will certainly wait after the Banks to report before I invest.

RBS carried out due diligence on ABN AMRO albeit before the sub prime disaster became fully apparent. The end year bad debt provision announced by RBS in December may prove to be sufficient and the dividend may well be safe, however the dismal sp reflects the uncertain outlook for 2008/9. No doubt Fred Goodwin will have something to say about that next month.

Hopefully RBS have made sufficient debt provisions. I think the best way for me to buy in would be in three separate purchases to spread the risk. One before the Finals next month, the second after but before the dividend x date and last later. More dealing cost I know but this could be safer way in.

Posted here "....BANKS.....need for massive provisions relating to derrivative trading..."
-er, makes me wonder whether Bankers should be re.named?

Just what is it that they think is good practice? Or- is it that when the market is flat, they can create some Bonus-enhancing trades by shuffling money about?

It seems to me that Bankers that make good profits using well-established prudent principles should receive bonuses, whereas those that do a spot of profiteering on the side with derrivatives, currency side-bets and the like which effectivly are there to "hedge" a position . . . . should not.

By taking the Gains and Losses (in the prudent banking) over time the quality of an executives performance can be judged. If they offset a bad-call with some side-bet then IF that means the Bank doesn't lose money, the fact should be included in their bonus. However, if their activity turns into repeating this it should not, for to encourage such activity is against sound business principles that should have been used in the first instance.

Spitfire BDEV trading update on thursday 17th January.

Thanks Halifax will place in diary, I had a look at other House builders and will add PSN to watch list.

Citi's figures are hard to comprehend, unless I have misread them, a 4th quarter Subprime writedown of $18 billion, consumer credit costs of $4 billion which gives a loss for the quarter of $9.8 billion.

RBS seem to have been hit most today down 20p to 395p, still sidelined on this at the moment. Even though I'm looking for an entry point, I just hope that the UK banks have allowed enough in there earlier writedowns. If they have under estimated this and with the housing problems in the UK it could become fairly ugly.

Made a purchase in cattles today, probably not at the bottom, but hopefully not to far off.

I will turn my attention to RBS now, but will buy in three tranches over the next few month's to try and spread out the risk. With all the doom and gloom in the press I'm sure we will see lower prices overall, as has always happened markets are always too pessimistic and too optomistic.

Each way I look I see shares that are vey tempting Aviva being another, but I think it's best to even out the risk of buying over a longer period.