Why ITV Shares Are Probably Worth Buying

Is there a sure way to make money from investing in the stockmarket? Probably not, but the Big Brand Name Stocks strategy comes close.

The strategy is simple, it's long term in nature (holding stocks for a minimum of 1 year, often 2-3), and trades come along rarely. It works on cycles and assumes that businesses don't stay strong or weak forever.

The rules of the strategy are -

• Be on the lookout for big brand name stocks that are trading at 5 year + lows
• In this situation a big brand name stock is defined as any company the average person on the street has heard of, even if they know nothing about the stockmarket
• Shell, Tesco, BP, M&S, these kinds of companies
• Researching the company is not necessary because you're not buying it for what it is today, rather how it will be run and managed in the future
• Allocate a certain amount of your overall portfolio and start buying the company's shares, I would suggest no more than 5% of your total portfolio balance

How The Strategy Attempts To Make Money

As I said earlier, this strategy relies on the natural business and economic cycles. You're trying to buy these big brand names stocks when the companies are down on their luck, most probably because of bad management.

But because the brand name is so well known and the company so well established most if not all of these companies have incredible potential. All it normally takes is for the present management to be thrown out, new management in and as importantly new philosophies and business plans to be developed and put into practice.

This in fact was exactly what happened with Marks & Spencers (ticker MKS) at the end of the 1990s. M&S at that time was then a shadow of its former self with even its semi-monopoly on basic underwear under severe threat. But new management came in, totally reorganised everything and the shares rallied from around £2 to over £7. Admittedly though it did take several years.

Interesting to note with M&S during this time was that most in the media were forecasting that the company had lost it, could never get back to where it once was, and for all intent and purposes anyone who considered buying the shares was slightly foolish.

ITV Is A Big Brand Name Stock That's Trading At 5+ Yearly Lows

Who hasn't heard of ITV, the television company? Nobody, which defines it by default as a big brand name stock. It's also trading at this century lows, maybe even 10+ year lows (my chart only goes back to 2001).

Now I don't know what the problem is with ITV but this information is not important. What is important is the company's business plan is obviously failing but at the same time it's the dominant TV channel in the UK (BBC excluded as that's funded by means of tax).

So is the company going to continue to erode value, the shares are down by 50% in just the previous 8 months, or is somebody going to do something about it?

Whether the present management will get thrown out and a new team brought in, again I don't know. But I do know that it's almost inconceivable that over the next 5 years ITV won't be transformed as a company. Why, because this is what normally always happens with these big brand name stocks. Natural business cycles at work.

Summary

Tipping a share to go higher or lower is often not that hard. The hard part is to get the timing right, in fact timing is where 90% of market participants struggle. But when there's value on offer, as I believe we're seeing right now with ITV, who cares whether you start to buy too soon.

Remember this is a long term trade, the shares with these kinds of trades normally have to be held for several years but the profits are often 100%+ or more, so in effect it's immaterial whether you buy at the exact low or even 10% or 20% higher. The important point is that you get in.

My personally strategy for ITV is as simple as I can make it. I've already bought some shares at 50.5p and will be adding to this position at every 5p below 50p.

Postscript - Use Charts To Find The Buying Price

Not everyone likes charts but for those that do I think they offer excellent reference points as to where to start buying and selling.

With ITV one could have easily made a case for buying them, using the strategy above, when they were 60p or 65p. But when you looked at the long term chart (the more years the better) the 2003 low of around 50p stood out like a sore thumb.

50p was therefore a sensible place to aim for and to start buying and you can see this level highlighted in the chart below.

Also of note are the A-B-C-D levels. I have found over the years that when you have a series of highs on a long term chart that averaging them and taking profits at that level is normally a good way to operate. Nothing flashy just using past history as a guide to the future.

Whether you like charts or not I've always found that these big multiyear highs or lows are useful for both buying and taking profits. And the beautiful thing about using charts this way is that you're using them very simply, and simplicity in this game of investing normally pays better dividends that getting complex.

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