This article was written by John Snowden and published in The IRS Report in July 2011

Weaker Vodafone price could be a good opportunity

Last March when I avoided making an equity recommendation and advocated caution in the form of the Tesco Finance 2018 Bond, I stated that I remained a confirmed bear of most markets globally.

At the time the indices were trending higher with the Footsie churning in March from 5,935 at the beginning of the month to end at 5,908, and the Dow from 12,058 to 12,319 and trending higher. This uptrend continued with the Dow peaking at 12,807 at the time of the royal wedding.

The Footsie formed a solid base at 6,000 during April and also peaked at 6,082 at the time of the royal wedding, generating talk of "Sell in May". So far, the sellers who took this view are well in the money. I personally dithered a little but in mid-May my private pension fund went 100% liquid.

So far, it has stayed that way but by the end of June I will have made investments in Martin Currie North American Fund, JP Morgan Smaller Companies and for income, Mansion Student Accomodation. Whilst I believe the dollar will continue to weaken, I am bullish for corporate America which seems firmly on the recovery track.

I will remain 78% liquid but have earmarked the likes of M&G Recovery, Investor Global Special Situations and Templeton Global Bonds as future investments for adding to my portfolio on a gradual basis.

Due to my Scandinavian location at least 25% of the balance will go into Norwegian Bonds and the Swedish economy. I believe the Swedish economy is probably the strongest in Europe and the Norwegians seem to be a little jealousabout that success and the strengthening of the Swedish kroner. In practical terms, Sweden is losing its attraction for Norwegians as the country next door for the cheap shopping run.

I reiterate that corporate America seems firmly on the recovery tack but even the upbeat view of the economy from the Fed's Beige Book has failed to lift the gloom. For the last six weeks since 10th May when the index peaked, there has been a persistant softening with five consecutive down days for the first week in June. By mid-month, the Dow had broken back below 12,000 on fears of a continuing short-term softening trend. This trend could reverse and give way to better growth for the second half of the year.

The UK seems to be in a similar position as companies continue to do well with exporters helped by the declining pound. One major difference in the UK is the continuing weakness in the Housing Finance Index (HFI) which has fallen back to 35.1 in June, the lowest level since March 2009. Below 50 signals a deterioration in household finance while above 50 signals an improvement. Job security is softening, spending is constrained by lower savings and a rise in debt while inflation expectations have risen to the second highest in survey history.

With miniscule interest on bank deposits, investors must look at alternative investments in the equity markets. I believe there is an outstanding situation on our doorstep which is already a constituent of my selected portfolio.

The shares have softened with the market by falling from a high of 180p in March to a recent low of 160p. At this level the shares offer a yield of 5.8% but on 1st June went ex dividend at 6.05p, which may have caused some institutional switching out of the shares.

For the private investor this could be the perfect time to get on board. To remind you, pre-tax profits for the year to end-June rose to £9.49bn from £8.67bn. CEO Vittorio Colao, issued a positive report for the current year and suggested that operating profits would be £11bn  - £11.8bn (March 2011 - actual £11.8bn +1.8%).

In mid-June, Vodafone completed the sale of its 44% minority shareholding in SFR, the French mobile operator, to Vivendi for the massive sum of £6.8bn, plus a final dividend of £176m.

The company will maintain commercial cooperation with SFR in the form of a Partner Market Agreement. It will then start a £4bn share buy-back programme as a form of enhancing value for existing shareholders. This will help maintain or support the share price if we see a further setback in the market. There is also the possibility that the company will make a special payment to shareholders in the form of an enhanced dividend but this is mere speculation on my part. I am therefore maintaining my positive rating.

This provider of real-time solutions for banks and corporate institutions has been on a roll since the end of March when it reported figures for the year to last December which turned a loss of £3.7m into a profit of £0.6m. Revenue for the year was similar at £9.13m (£9.87m) while diluted earnings per share were 0.99p compared with a loss of 13.93. There is no dividend and no plans to pay one for the future.

Cash in the bank rose to £3.7m (£0.6m) and the board confirmed that the order book and orders in the pipeline remained strong after the first two months of positive trading in the current financial year. On this news the share price remained steady at 40p, up from a low of 30p during the month.

In May, we had further company news saying that order visibility had strengthened and the board had increased confidence for the outlook for 2011 and added that trading was expected to be materially ahead of expectations. This news must have brought in the momentum investors as the share price rose 17% to 43.5p.

Unfortunately I did not spot this situation until we were going to press towards the end of May. The price had dipped back to 40p so I began researching the company. In June, the share price was pushing ahead again and had reached 50p by the middle of the month.

At the recent level of 56p, my initial reaction was to find another company but the Gresham share price did get as high as 207p during 2007. Gresham Computing has 35 years experience delivering technology based solutions to businesses. Over this period, the group has built up a reputation as a recognised payments specialist providing best of breed products and support services.

Offices are situated in Europe, North America and Asia Pacific serving a global client base which includes many of the Fortune Global 500 companies. The brand Clareti is well established with solutions helping organisations by offering real-time financial solutions and improving communications for those that use the system.

In addition to Gresham Real-Time Financial Solutions, the company has Gresham Storage Solutions that helps businesses deal with the unrelenting growth of data, providing understanding and improving connections for those that use the systems.

The company has not made an official forecast for the year. Looking back to 2007 when the share price crossed 200p, the company did not make a pre-tax profit for the year but the board was confident that the outlook was good and in 2008 the losses were substantially lower. Analysts surveyed by FactSet are forecasting a pre-tax profit of £900,000 for 2011.

Due to the current volatile market conditions, I believe investors who are prepared to take a position at the current share price should set a 20p stop loss and hope for a run in the share price similar to that of 2007.