Swapping Castings PLC (LON:CGS) for XP Power Ltd. (LON:XPP)

I acquired Castings PLC (LON:CGS) as part of my rules based strategy. The business has struggled to grow in recent years and is a UK manufacturer that sells into Europe. It has seen a spike in demand this year as customers stockpile ahead of Brexit. Castings is an average quality business that has been well run, but I suspect its best days are behind it. I sold the stock because I consider it to be the weakest in the UK Portfolio.

XP Power Ltd. (LON:XPP) trades on a similar earnings multiple to Castings and pays a higher dividend. It is a stock I have owned in the past and unlike Castings the business seems to be improving. I agree with this analysis by Richard Beddard and bought some shares with the proceeds from the Castings disposal.

XP Power recently acquired a couple of companies servicing semiconductor equipment makers and I think these purchases could prove to be ill-timed given the industry appears to be rolling over. Sales to the semiconductor industry make up about a quarter of XP Power's revenue and the long-term prospects of this segment look strong despite its cyclical nature. I expect XP Power to deliver subdued results in the near-term and that is probably why the price (13x forward earnings) is attractive given the company's track record.