Why I’ve just sold two of the largest investments in my Stocks and Shares ISA
At the end of last week, I decided to sell part of my investment in Citigroup and Norfolk Southern. At the time, they were the two largest investments in my Stocks and Shares ISA.
This has nothing to do with the Budget, my view hasnât changed on either business, and I still own a good amount of both. But I decided there was something else I wanted to buy.
Selling shares
In general, Iâm not a big fan of selling investments. Even when a stock becomes a large part of my portfolio â as those two had â I prefer to add to other things, rather than sell.
I also try to avoid setting up my portfolio to be ready for near-term events. For example, I donât look to sell cyclical companies when I think there might be a recession on the way.
There are two reasons why I might sell stocks though. One is if my outlook for the business changes â either because something happens or I find out something I didnât already know.
In that situation, Iâd probably look to sell all of my shares in the company. If something causes me to stop seeing it as an opportunity, itâs unlikely that Iâd want to own it at all.
That isnât the case with either Citigroup or Norfolk Southern. So Iâve retained the majority of my shares in both (and Citi is still the largest investment in my ISA).
The other reason is if I see a different opportunity I want to take advantage of. In that case, I might raise cash by selling part of another investment â and thatâs what has happened here.
What Iâve bought
This raises the question of what Iâve been buying. The answer is Dowlais (LSE:DWL) â a FTSE 250 engineering firm thatâs fallen so far I decided action was required.
Revenues are falling, the business is paying dividends despite not turning a profit, and the stock is down 56% in 18 months. There’s a danger of this continuing. But I see a lot of hidden value here.Â
First, Dowlais hasnât actually been performing as badly as it seems. Its reported losses are due to one-off restructuring costs and some non-cash charges in the form of goodwill impairments.
Neither of these looks to me like a serious long-term issue. Leaving them aside, the company generated around £355m in operating profit in 2023 â over half its current market cap.
Second, Dowlais is considering selling its powdered metals division, which reported operating income of £96m in 2023. This could put investors in a very nice position if a deal goes through.
If the firm clears its debt with the cash, shareholders will be left with the automotive arm. That made £300m in operating profit last year â and the market cap today is around £650m.
Risks and rewards
Whether or not Dowlais goes ahead with the sale of its powdered metal business, I think things look good from an investment perspective. I can see above-average returns either way.
Itâs unusual that I sell shares in companies that Iâm still positive about, but it does happen when something very unusual comes along. This is one of those times.
The post Why I’ve just sold two of the largest investments in my Stocks and Shares ISA appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Stephen Wright has positions in Citigroup, Norfolk Southern, and Dowlais Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
