LONDON -- This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.
While celebrating the Beginners' Portfolio's successful first year, and then re-examining Vodafone in the light of its changing dividend policy, I've been pretty much ignoring our watchlist for a while. It's a list of shares that I want to keep my eye on as possible purchases for when the time comes to replace any of our current holdings.
The current watchlist looks like this:
| Daisy Group | 340 million | 126 | 9.8 | 2.4% |
| GKN | 5.0 billion | 303 | 11.2 | 2.6% |
| Ricardo | 211 million | 404 | 12.2 | 3.4% |
| Trinity Mirror | 288 million | 113 | 3.9 | 0% |
| TUI Travel | 3.8 billion | 341 | 11.9 | 3.8% |
| Unilever | 34 billion | 2,667 | 18.5 | 3.3% |
| United Utilities | 5.0 billion | 735 | 17.1 | 4.8% |
| WS Atkins | 870 million | 875 | 10.9 | 3.7% |
The first thing to notice is that all of the watchlist members are up since we last looked in January, some quite impressively.
It really has been a buyer's market over the past year, and that's a sobering thought, really. Though the portfolio did well in its first year, there were a lot of good shares to choose from, and the real test will come when the pickings aren't quite so rich.
I come from a communications background, so I've always liked small telecoms companies. And Daisy Group has done exceptionally well -- the price is up a very nice 38%. Ruing past opportunities is not something I'll be doing here, but Daisy can certainly stay on the list.
Time for some pruning
But I'm going to get rid of our two engineering consultancy firms, WS Atkins and Ricardo. Both still look reasonably valued, but I prefer my exposure to such an out-of-favour sector to be more direct.
BAE Systems is already in the portfolio and doing well, and in aero- and car-components maker GKN, I think we have an attractive enough alternative to keep us going for now.
I'm also dumping Trinity Mirror -- not because I think the fundamentals aren't cheap, but because I don't really understand how to value the publisher.
And, as one of my key rules is "don't buy something you don't understand,"
out it goes. It might prove to be a super bargain, but it's one for someone else.
In with the new
I'm definitely not one for "diversification for its own sake," but I do think it's an important factor for a portfolio, and for me, there are two key sectors missing -- utilities and banks. Utility companies provide very steady income, and banks, well, they're a big part of the economy.
We already have United Utilities on the watchlist, and I'm adding SSE (LSE: SSE ) , too.
SSE has a very nice 5.8% dividend yield forecast, and it's on a forward P/E of 13, which is modest for the sector -- in fact, if there was an empty slot in the portfolio now, SSE would be a strong candidate.
I'm also adding Barclays (LSE: BARC ) and Lloyds Banking (LSE: LLOY ) .
Barclays has been through some torrid times, but looks to have shaken out a lot of the rotten wood. And Lloyds, well, if we're looking at banks, it could pay to have one of the two bailed-out ones on board -- and the forthcoming TSB split should add some interest.
I'm also going to add Halfords to the list, because I think there's a decent chance of the retailer becoming a turnaround candidate in due course -- and I just kind of like the company!
The new list
So, here's what the new watchlist looks like:
| Barclays | 39.2 billion | 302 | 8.6 | 2.4% |
| Daisy Group | 340 million | 126 | 9.8 | 2.4% |
| GKN | 5.0 billion | 303 | 11.2 | 2.6% |
| Halfords | 628 million | 312 | 13.5 | 4.8% |
| Lloyds Banking | 43.5 billion | 61 | 13.4 | 0.3% |
| SSE | 14.5 billion | 1,516 | 12.9 | 5.8% |
| TUI Travel | 3.8 billion | 341 | 11.9 | 3.8% |
| Unilever | 34 billion | 2,667 | 18.5 | 3.3% |
| United Utilities | 5.0 billion | 735 | 17.1 | 4.8% |
Finally, my idea of the kind of shares that should make up the core of a beginner's portfolio is the same as my choice for an ISA, or a retirement portfolio -- or, in fact, any portfolio.
I'd start with good strong companies that should stand the test of time and potentially reward you for decades.
Not surprisingly, the Fool's top analysts think similarly, and they have put together a special report detailing five blue chip shares that I think would be ideal for anyone at the start of their investing career.
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