I saw an interesting article today (which I shared on Twitter earlier) in the Daily Telegraph in which Ambrose Evans-Pritchard wrote up a note from the Morgan Stanley strategist Graham Secker. I remember him from my time in the City and I rated him highly as he made some good call and does interesting research. The write up is about his technical indicator which measures market valuation and sentiment etc. and includes a chart of the indicator which is shown in the chart. You can click the image to read the article which I highly recommend, although it is worth noting this isn't a signal to rush out and buy today. But it does suggest some well chosen contrarian purchases down here while everyone else is losing their head might bring you some decent returns in the medium term.
We also had a trading update from Diploma (DPLM) today which is in the Mechanical Compound Income Scores portfolio and currently has a score of 82 which is lower than when it entered the portfolio. It is also therefore getting close to the sell threshold so this may well be one that is heading for the exit at the next quarterly review at the end of September.
This seems more likely now as the update, while positive in parts, did allude to some headwinds on underlying turnover and margin pressure. However some of this related to a relocation of operations in the seals business and lower margins on some new acquisitions. These (acquisitions) have been and continue to be part of their business model and quite often they then ramp up the margins so this may not be such a concern in the medium term.
However I suspect it may lead to some downgrades in the short term and therefore could hit the score some more too. Before any changes and with the shares off by 7% this morning this leaves them on a still fullish looking 18.5x this years currently forecast earnings with a 2.6% yield. So I wouldn't suggest buying this one just yet and indeed with the slowdown in growth to single digits the rating still looks a bit rich so you could perhaps even call it a sell?