Last week I suggested that Fools who had got a little chewed up withAvivas rollercoaster final quarter might want to look at grabbing shares inJelf (LSE: JLF)for their portfolios, after a cashflow-positive story combined with some enviable operating success this past year meant the firm was ideally positioned to snap up struggling competitors at a bargin.
Well, come Tuesday, and the insurer acquired rival Beaumont for a song, sending Jelf shares 10 % higher the following day.
With great companies that are on the up, you cant afford to sit about and wait for bargains, especially in markets that are a little on the saturated side with poorer-performing companies that hold no appeal whatsoever right now. Probably the poorest comparative performerthis year has beenTesco (LSE: TSCO), which I tried to warn readers off only weeks beforeall the major trouble there began. Theres been a lot of chat, but the truth is thatthings arent likelyto get much better there any time soon, so if you are holding on in vain trying to recover previous losses with a little late-stage momentum rally, you are better off looking elsewhere.
AA To The Rescue
Appropriately enough for investors whose portfolios could do with a repair right now, AA(LSE: AA)holds some really nice appeal going into the New Year.
Its worth noting briefly first that are a number of superficial quantitative similarities between AA and Jelf: both companies are trading at around 25x P/E, both are up 42% in 2014, and both have recently received affirmations of buy ratings by the investment bankers who represent them (and therefore know them best) in the past month, accounting for an identical 14% rise in the share price over the past financial quarter.
These are not mere coincidences, despite the fact thatthe companies are far apart in size (AA is worth 1.85 billion right now). Good stocks tend to trade similarly for a good reason: the same investors are buying them at more or less the same time. Also, they have competent management teams that are judging the market right, skipping the need to go announce something important when the going is rough and instead saving the pitch for when everyones in the mood.
That said, these past two quarters have been especially tricky, however great your timing of the market feed might be. Which is why its especially impressive in the case of AA that the company, loaded up to the eyeballs in debt, went for the chance to IPO in July and has since posted such an impressive performance.
Red Hot IPO
AA owes a lot of its good fortune right now to its advisers Liberum, who seized the chance to steamroll an 11th hour deal into the market by pitching AAs former owner with an impressive case for the British insurerto go public over the summer when no one was looking.
But its also shown that with the newfound headline status and extra capital, it can deliver on the things that matter to investors and fast. Thus, while AAs actual numbers of policies in force have shrunk on the year-ago period as it has contended with the same difficult operating environment that everyone has lately, the companysprofit for the period is 88% higher, at 28.9 million. Thats the kind of story that just makes you feel great about IPOs.
Revenue increased in line with the insurers cost of sales, which is important when you are dealing with claims, as any spike in sales costs not matched by income at some level leaves the companys future growth exponentially more open to the risk of value erosion, since the same policies also potentially lie in wait as claims.
Pick ‘Em While They’re Still Hot
Never let a good thing go cold: right now, Jelf and AA are good things. If you are stuck in a perpetual loser such as Tesco, which it will take a private equity fund to mess about with before it returns any real value, it might be time to reassess.
In fact, with the end of the year creeping quickly up on us now, reassessing your portfolio anyway is a great idea. To do this effectively, I find it often helps to have a guide at hand such as this one containing7 simple steps for acquiring serious wealth.All ourspecial reports here at the Fool are free,and there’s no catch — so go ahead anddownload!
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