For value investors such as Fat Prophets, stocks that trade below their asset backing and have good recovery prospects provide ideal buying opportunities. A prime example of this was pub and comedy store operator Regent Inns (REG). We were optimistic that following a difficult period of trading, the company's restructuring of operations, new management and the stronger balance sheet would lead to an improvement in the share's performance. The shares trading below net tangible asset backing was an added bonus.

In the face of challenging retail conditions, like-for-like sales at Regent were improving and new lending arrangements had been reached with lenders. The market's reaction was swift and strong. In less than four months the share price more than trebled, giving us our first opportunity to lock in profits with a half sale of our position in February. Further operating improvements followed and sales continued to grow. However, management's apparent commitment to growth by acquisition gave us plenty of reason for caution. Particularly after Regent's attempt to buy Urbium, owners of the 'TigerTiger' franchise, at a hefty 54 percent premium. As such, by September and despite the robust turnaround story, we believed it prudent to reduce our exposure at a profit for a second time.

The previous year we had reduced our exposure to US based lifestyle company Martha Stewart Living Omnimedia (NYSE, MSO) following the shares strong rally in just over a month's time. At the start of 2005, the turnaround efforts at Martha Stewart gained momentum. Optimism surrounding the return of the company's founder and namesake, plus a large retail merger and further television developments, drove the share price to an all-time high. Therefore, despite continued losses the shares trebled as the stream of positive developments were priced back into the stock. The belief that the market was now getting ahead of itself led to us reducing our exposure at the end of February.

Following this recommendation, the shares as expected corrected from their new highs. Despite improving results showing losses narrowing, the shares continued to weaken and broke below a key level of technical support. We became concerned that with support broken, further selling would be increasingly technically driven in spite of the improving fundamental picture. As a result, in October we completed one of our most successful trades to date by issuing a mid-week alert recommending that Members sell all their remaining holdings.

General retailer Woolworths (WLW) attracted our attention due to its undemanding valuation and steadily improving operating margins. Already two years into a successful recovery plan, we also had a high regard for the company's management, and the group's sound franchise and pricing power. By 2005 takeover speculation joined this heady brew.

The takeover rumours gained validity at the end of January when private equity group, Apax Partners, tabled an indicative 58.2p per share offer. Prior to Woolworths' full year results announcement in March we advised Members to sell half their holdings principally due to the Apax offer. We believed that the bid was fairly valued and felt it was prudent to lock in some profits in case the offer was withdrawn, whilst maintaining some long-term exposure to the on-going turnaround.

Our initial buy recommendation on WH Smith (SMWH) in January 2004 was predicated on the basis that the retailer had been oversold following a disappointing performance from the high street bookstores. We believed the underlying fundamentals of the business were sound, and we were encouraged by the prospects for recovery under new management. Months later our opinion that WH Smith was undervalued on a sum of the parts basis was reinforced by private equity firm Permira's informal bid approach in April 2004. However, concern that the offer may falter resulted in the decision to reduce our position the previous year.

Subsequently the bid was withdrawn due to issues surrounding WH Smith's large pension deficit. By the middle of this year we became more concerned about the plight of the retail sector. Given our belief that interest rates had further to rise, the general outlook for the domestic retail sector was becoming bleaker in our opinion. As such, despite the turnaround being engineered at WH Smith, we believed the most prudent course of action was to take further profits and seek opportunities elsewhere.