For almost two glorious years now, I've been writing for The Motley Fool Australia – having nearly 1,500 articles published.
However just a few short weeks ago, I decided I'd start to write some more engaging pieces and highlight to regular Foolish readers some of my favourite stock picks every month for new money.
In my first piece, I highlighted my top three stock picks to buy in January, they were G8 Education Ltd (ASX: GEM), Credit Corp Group Limited (ASX: CCP) and Netcomm Wireless Ltd (ASX: NTC).
Here's how they've fared so far…
Source: Google Finance. Click to enlarge.
Up 14.8%, 13.7% and 13%, respectively, they're each off to very good start. However I'll be quick to remind readers that trying to time the market is nothing short of guesswork!
Indeed, aside from Credit Corp's good results last week, nothing much has really changed for the businesses which could explain their sudden share price rise.
Still, you won't hear any complaints from me.
Moving forward into 2015, whilst you'll no doubt enjoy getting a basket of top stock ideas (i.e. three or more) each month, it's definitely not easy to come up with multiple investment ideas without sacrificing on quality – after all, any stockbroker can find a reason to sell you the big banks in a low interest rate environment!
So I've decided I'll air just my favourite idea for new money each month.
If this article drives enough reader interest (be sure to 'like' and/or 'tweet' using the widgets next to the article) I'll continue to write these pieces.
However it won't always be a plain-old vanilla stock pick, sometimes I'll venture into options, warrants and other types of seemingly esoteric investments.
Here in Australia, options are seen as especially risky investments; but throughout much of the world they're used prudently for hedging and income purposes – often to great effect!
As with all articles you read on the internet (yes, even my own!), I should point out that these stock picks are just ideas for you to consider.
You should always endeavour to conduct your own research before hitting the buy button.
My top stock idea for February: Slater & Gordon Limited (ASX: SGH)
Source: Google Finance. Click to enlarge.
The above graph shows Slater & Gordon's ("Slater") performance against the broader Australian sharemarket index, the S&P/ASX 200 (ASX: XJO) (INDX: ^AXJO), over the past five years.
Whilst its share price has already risen an incredible 336% in that time, there are many reasons to believe Slater & Gordon will continue to be a great stock pick over the coming five years – although I'll admit its rise mightn't be so spectacular, given its current $1.4 billion market cap and the ASX being at a level which has historically not been very cheap.
Slater & Gordon is Australia's largest personal injury law firm, with an estimated market share of between 20% and 25%. The personal injury (PI) division has been the crown jewel of the business over the past few years. In this space, its major competitors are Shine Corporate Ltd (ASX: SHJ) and Maurice Blackburn.
A PI business will likely be appealing to risk-averse investors because, after all, the economic environment is unlikely to perturb an individual who intends to sue their employer – at least that's the way I see it.
Slater & Gordon will continue to enjoy robust profit margins within PI but its next wave of local growth is likely to come from general legal services. Its market share here is much smaller but growing and when coupled with PI it will create synergies for the firm.
Whilst its local growth prospects are good, it's Slater & Gordon's UK expansion which everyone is watching.
Over in the UK – a market five times larger than ours – Slater & Gordon is undertaking both an organic and acquisitive growth strategy (similar to the one it used here in Australia).
Despite a market share of around just 5% in the UK, throughout FY15 it's expected to derive slightly more than 45% of revenues from the UK (now you can see why I'm excited).
Last week, Motley Fool writer Tom Richardson wrote that speculation was mounting for Slater & Gordon to launch an offer for part, or all, of the legal services business of UK rival, Quindell Plc.
Currently Slater & Gordon is estimated to control the third largest share of the UK PI market, behind Quindell (7%) and Irwin Mitchell (6%). However if Slater & Gordon makes a deal with Quindell its market share could jump significantly and if Quindell's troubles continue (its share price is down 85% in one year), its place as the leading UK PI law firm could be a reality, sooner rather than later.
But whether or not that deal goes ahead, Slater & Gordon remains a great buy at today's price of $6.60 per share.
Although I take most analyst reports with a grain of salt (I use them as a source of qualitative information but do my own quantitative work), I'll admit it's reassuring when so many have buy ratings on one stock.
Here are some 12-month price targets currently placed on Slater & Gordon, taken from either Morningstar or Slater & Gordon's website (note the hyperlinks go to the reports):
Remember these are 12-month price targets, as a value investor I do not believe you can successfully invest with a timeframe of just one year. Think about your own business – or if you don't own one, make one up! It'd take a much longer time for your company to capitalise on its growth opportunities!
However, I too think fair value for Slater & Gordon shares lies well above $7.00 – implying a decent margin of safety at today's prices.
In terms of dividends, it is expected to pay a fully franked dividend equivalent to 1.7% of its current market price in the next year, but it's worth noting its dividend cover (the amount of times its profits cover the amount it pays out to shareholders) was 3.9 times (very good) last year.
Foolish takeaway
I already own Slater and Gordon shares from a much lower price but even at today's levels it looks to be a good investment for capital and long-term income. I'll reiterate again however that it is a long-term investment (5 years minimum!), so consider it accordingly.
Whilst it isn't immune from risks (indeed I'm sure there's a multitude of what-if scenarios any prudent investor could come up with), I think Slater & Gordon has a bright future ahead of it.
