Stock market competition part 2 and a Brexit opportunity

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I thought it would be useful to look at what I wrote in part 1 (http://www.dividendtycoon.com/blog/2016/06/22/lessons-i-have-learnt-so-far-playing-a-stock-market-competition/), and how that relates to a post-Brexit world.

Firstly, my position in the competition for June ended up as 104th (out of 1380). The good news though is that I am top of the overall leaderboard! (http://www.sharenet.co.za/v3/stockpicks/index.php?id=3&facebook=)If I could maintain this position till the end of the competition I will win a motor vehicle worth about $25000. I hope you will stick around for the ride (excuse the pun), although this will be my last post for a while on the actual competition. I am not off to a good start for July, but a lot can happen in a month.

The main point of this post was to look at how what I wrote in part 1 really played out. I wrote how I had been crushed by the rise of the gold price, only to delight in it’s subsequent decline. Then Brexit happened. Gold stocks rose 20% in a day and I slipped very far back. However this only reinforces my view that the best stocks to own are businesses that you understand, that pay you a dividend. Sure some people got lucky with gold for the month, but where will those stocks be in five years, how much money will those gold mines make? As it happens gold still slipped back quite a bit after the initial Brexit panic and my stocks did fairly well still. As a Dividend Tycoon I want to be the part owner of good businesses and real estate, that pay me a portion of their profit every year without fail. I do not want to have bad years because the gold price is down.

Making the most of Brexit

Whatever your view on Brexit is, the only certain thing for now seems to be uncertainty. I am not going to get into the nitty gritty of Brexit, mainly because it has been extensively covered already, but perhaps more importantly because I have no idea what the consequences will be a few years down the line.

However, as a Dividend Tycoon, or aspiring Dividend Tycoon, such points in history always throw up opportunities. The 2007/2008 financial crisis was not good, but if you had been searching for future dividend income at that time and had pounced on the opportunities, you would be smiling now.

So many British stocks have experienced substantial declines that I think if you are looking for bargains, now is a good a time as any. You need to do your own research though. I will share though one stock which I have been looking at as I have owned it before and know fairly well, Intu Properties PLC. It is also a stock I picked for the stock market competition (stock code: ITU), although it is down quite a bit since friday when I picked it.

Intu Properties PLC

Being based in South Africa this is a stock I have known for some time as it was founded by a South African businessman, Donald Gordon, in the 1980’s and was one of the few stocks available on the Johannesburg Stock Exchange with which you were able to get exposure to a foreign currency without taking money out of the country, as all the assets at the time were shopping malls in the UK.

Today they own 9 out of the top 20 shopping malls in the UK. This is quite impressive because the UK, due to the relatively small amount of land available for building, has incredibly strict planning conditions, and to build a major development can take many years, if it is even possible. This creates a strong moat around the existing malls as it is so hard for another mall to be built. These shopping malls are income machines that are protected by long leases and thus have stable income. They did go through a hard time during the financial crisis of 2oo7/2008, but got through and seem to have learnt their lessons, having subsequently reduced gearing levels.

They have also bought some distressed prime shopping malls in Spain, and with the devaluation of the pound to the Euro should be a positive.

I like the fact that they stick to their core business of owning, developing and managing shopping malls, and do that well. They have moved with the times and have taken on the threat of online shopping. Being prime malls they could even benefit from the trend toward click and collect.

I think the most important thing when evaluating stocks in the post-Brexit world, is will there be much change as a result of Brexit? Now if you ask me about the big UK bank stocks and central London office property stocks, I am not sure. However, people will still be going to the mall to do their shopping, to meet friends or enjoy a meal. Coincidentally I read an interview with the CEO of Intu Properties this morning, which has reinforced my view on this stock, you can read it here http://www.biznews.com/global-investing/2016/07/04/brexit-induced-bargain-intu-properties-shares-appeal-unwarranted-smack/ As the CEO stated. they have 400 million people visiting their malls per year.

Unfortunately I am not able to purchase this stock at the moment due to a lack of funds, but if I had, I would certainly be interested in becoming a part owner of 9 of the top 20 shopping malls in the UK, at a price that is 15% cheaper in pounds (much more if you use other currencies due to the large depreciation in the pound) than it was 10 days ago. Then I would let the dividends compound and use them to increase my stake in this dividend machine through the dividend reinvestment plans they have.

This investment might pay for your own shopping one day. For now, unfortunately, I am just hoping it contributes to me winning that vehicle!