10 Shares I Should Have Bought in the Crisis

LONDON -- The global banking crisis sparked a savage bear market. Companies previously regarded as blue chips went bust. Huge banks were taken to the very brink. Share prices collapsed.

Since then, many shares have rallied significantly. In fact, it is not too difficult to find companies whose shares have risen tenfold. Typically in a market recovery, the companies that subsequently rise the most are those that come closest to going under.

However, in 2008 and 2009, some companies that were never in serious danger fell heavily. Even companies that were making profits and paying dividends throughout the toughest times were hit. Despite their success, the bear market pushed prices of many great companies to excruciating lows. As markets improved, some great companies have since seen their share prices multiply. These are the shares I wish I had bought in the crisis.

Company

Crisis Low

Price Today

P/E (now, historic)

Yield (now, historic)

Market Cap (millions of pounds)

Babcock International

348.5

919

20.3

2.5%

3,320

Compass Group (LSE: CPG.L  )

237.5

706

19.3

2.7%

13,190

Delcam

195

860

26.8

0.8%

67

Experian

274.75

1,020

24.9

2%

10,260

Fenner

33.75

362

14.6

2.2%

699

Legal & General

23

133

10.9

4.8%

7,940

Mulberry (LSE: MUL.L  )

59.5

1,315

30.6

0.4%

793

Next (LSE: NXT.L  )

837.5

3,563

14.3

2.5%

5,920

SAB Miller

799.5

2,698

21.1

2.1%

44,070

Wynnstay Group (LSE: WYN.L  )

161

400.25

12.9

2%

67

I've picked out four of these companies as particularly appealing.

1. Mulberry Group
Investors like Warren Buffett love companies with strong brands. Through its eponymous range of luxury handbags, Mulberry is arguably the strongest brand owned by any U.K.-listed company.

Mulberry shows the returns that can be made from shares when you pick a winner.

In June 2009, Mulberry reported earnings per share of 4.5 pence for the year to March. This was down from 6 pence the year before. The company also reported that for the first 10 weeks of 2010, sales had increased 26%. At the time, Mulberry shares were 70 pence. Investors were being offered shares in a company with a leading brand and fast-growing, high-margin sales at 15.6 times most recent earnings.

Despite the horrors of the financial crisis, Mulberry was still trading profitably and paying a dividend. At this point, the shares carried very little risk. At the time, Mulberry offered a great opportunity to buy an outstanding company at an ordinary price.

2. Compass Group
Compass Group is a large-scale caterer and support services provider. Compass provides services for large employers and big events worldwide.

In September 2008, Compass issued a trading statement confirming a 5% increase in sales and significant margin improvements. This did not stop the shares from falling, however. By mid-November, shares in Compass Group were changing hands for less than 250 pence each.

At the end of November 2008, the company announced EPS for the full year of 22 pence -- an increase of 45%. Sales had increased 5.9%, and the dividend was raised 11%. Compass had proven the durability of its business; the shares never looked back.

Earnings per share have increased at Compass through the financial crisis and recession. The company is expected to deliver earnings growth of 16.5% for 2013, followed by another 9.2% in 2014. 2008 was a great time to buy a resilient, world-class business that was being priced as if it was going into long-term decline.

3. Wynnstay Group
Wynnstay Group is an agricultural supplies and retail business. The company has an eight-year record of increasing dividends to shareholders and is one of the most successful companies listed on AIM today.

Wynnstay's low came in late December 2008. At this time the shares were trading at 161 pence. This was just 8.2 times the company's most recently reported full-year profits.

Considering Wynnstay had announced a 42% increase in interim profits just five months earlier, the market was undervaluing the company massively. This was demonstrated in January 2009 when Wynnstay reported record results and EPS of 29 pence.

The markets that the company serves are uncorrelated with discretionary areas of the economy. It is surprising that the shares fell so low. Although they have since more than doubled, there is room for further rises. Wynnstay shares today trade at just 11.8 times 2012 forecasts. For a company with such an excellent track record, that seems cheap.

4. Next
Next is one of the few high-street retailers that are thriving today.

However, go back just a few years, and Next shares were suffering badly. In the second half of 2008, the shares fell as low as 838 pence. The growth being enjoyed by online fashion retailers -- most notably ASOS -- left investors speculating whether Next had been left behind. These sentiments drove Next shares down to less than six times the previous year's earnings.

Since the bear market ended, Next has been proving itself to investors with increased earnings and dividends. A payout of 101 pence is expected for 2013 (Next has a January year-end) -- nearly double the dividend for 2008 and 2009. Earnings per share are expected to hit 274.3 pence -- a 9.3% advance on 2012 and 73% higher than the 2009 result. Next Directory (which includes online) sales are now 40% higher than they were five years ago. It appears that Next has online sales licked.

Although Next reported a slight dip in EPS for 2009, the dividend was never cut throughout the worst of the crisis.

If you want to boost your investment returns by buying shares in high-quality, resilient companies, then take a look at what top fund manager Neil Woodford has been buying. The Motley Fool report "8 Shares Held By Britain's Super Investor" tells you what this master investor has in his portfolio. The report is free and will be delivered to your inbox immediately.

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Further investment opportunities:

David does not own shares in any of the above companies. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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