When you are an investor, you should always be on the lookout for the next big investment opportunity.
It may soon be time to take profits on some of my investments. Some shares I will have already sold. So there is always some spare cash to invest.
Thats why I keep a busy watchlist which I check regularly. If I hear about a company with strong prospects, which is doing incredibly well, or which has been heavily oversold, then I may add it to this watchlist. Likewise, if a company looks overvalued, I may remove it from the watchlist.
I have written about Tesco many times. This is a company which has long dominated the UK retail landscape, but whose share price is in freefall through a combination of increased competition at both the high and low ends of the market, and a muddled strategy which has lacked a clear message about what Tesco is really about.
But my local Tesco still seems as packed as its ever been, and the company still generates a tonne of cash. Plus the company is beginning to look cheap, at a P/E ratio of 11.2 and a dividend yield of 6.7%. This reinforces my view that Tesco is a strong turnaround prospect.
But I must emphasize that the turnaround will take time. Earnings are still falling, as margins tumble in a fierce price war. Thats why Im not buying yet, as I suspect the share price will fall further.
Building and infrastructure business Carillion is a company which I have invested in before, taking a tidy profit of nearly 50% (including dividends) after a years investment. I sold at 370p, and the price is now at 330p, with a downward trajectory.
This is a company which is moderately cheap (the 2014 P/E ratio is 9.7, falling to 9.2 in 2015, with a dividend yield of 5.4 rising to 5.6) but which is neither growing rapidly nor in decline. Its the sort of company which you can rotate in and out of, buying at the troughs and selling at the peaks.
So Ill wait until the share price falls to the high 200s, and then buy in. If the share price never reaches that level, not to worry there will be other opportunities.
Foolish bottom line
Whereas Tesco is a long-term investment opportunity, I see Carillion as a medium-term investment/trade. I think both are, in different ways, worthwhile buys. But, with both, I will bide my time, choose my moment, and only invest when the time is right.
Where the smart money is headed
When the FTSE 100 is reaching multi-year highs, you might start wondering whether the market is beginning to look overvalued.
But even when many shares are looking expensive, there will still be ways of making money. However, we at the Fool believe valuation and stockpicking will be crucial. We have written a free report which explains more about our thinking.
Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.