Wetherspoon regains its appeal now froth is out of the share price

SurfControl is survivor worth holding on to; GW Pharmaceuticals shares on a cannabis high

For a pub company that has built its image on serving cheap pints, JD Wetherspoon's shares have tended to be inappropriately expensive.

The stock has traditionally traded at a premium to the group's peers, such as Greene King and Regent Inn, companies without the same growth ambitions as Wetherspoon. But since January, investors have begun to doubt the strength of the Wetherspoon phenomenon and the price has slumped by around a quarter, justifying this column's advice to sell.

Against a backdrop of disappointments from pub companies such as Old Monk and SFI, the market frets that Wetherspoon's sales growth is slowing just as margins come under extra pressure from additional costs associated with running bars. Wages, national insurance contributions and utility bills are all rising.

As the company, which has just over 600 pubs, grows, so it edges towards maturity and future gains won't be so easy. The target of opening more than 1,500 pubs over the next 10 years could stretch even the acknowledged capabilities of Tim Martin, the group's ebullient founder and chairman.

Although analysts are comfortable with debt levels and reckon interest cover of four times is sufficient, they caution that the strain of refurbishing older sites could take its toll on the balance sheet.

That said, yesterday's first-quarter trading update showed the group to be chugging along quite happily. Like-for-like sales for the 13 weeks to 27 October rose 5.3 per cent, compared with 6 per cent a year earlier. That's still better than most of Wetherspoon's rivals. Reassuringly, margins are stable, despite the fact that low-margin food sales are behind much of the growth.

The Wetherspoon brand is well positioned and consumers could well flock to enjoy its cheap drinks if the economy falters. Also, the group owns the freeholds to a sizeable chunk of its estate, which could prove a relief if trading stumbles.

The share price decline this year has brought the company's forward earnings multiple down from around 20 times to 15 or so. At this level they are starting to look interesting.

SurfControl is survivor worth holding on to

SurfControl is the killjoy of the tech sector. It is the big red hand that appears to stop employees accessing dirty, or just distracting, websites and to filter out inappropriate e-mails. Its software is selling well to companies, schools and nervous parents, and the company itself has just gone into profit for the first time.

Yes, you read that right. After having been one of the all-hope-and-no-profit companies first swept up and then dumped in the tech frenzy, it made $94,000 (£61,000) in the three months to 30 September, on sales of $15.7m. It has been generating cash since last year and now looks set fair to be one of the survivors of the sector.

Of course, you could be forgiven for feeling nervous when a company trumpets "its 17th straight quarter of meeting or exceeding market expectations", particularly when it has just won the techMARK company of the year award won in 2001 by ARM Holdings. Those of a bearish sensibility enjoyed ARM's dramatic fall from grace earlier this year after its own run of forecast-busting results.

But Surfcontrol does genuinely appear to be in a sweet spot. The advantages for companies of investing in internet-blocking software are clear cut, in both financial terms (boosting productivity) and legal terms (avoiding liability for the circulation of nasty e-mail and web material). And growth prospects are large. Industry estimates suggest only a fifth of large corporations have installed this sort of software, while the potential for sales to small and medium-sized companies is even greater. The likelihood is SurfControl's assured management will ride the wave successfully, rather than fall off the board.

The share price looks a bit frothy, though, and new investors should wait until the latest rally by the software sector runs out of steam. At 427.5p, up 26.5p, it trades on a multiple of 26 times this year's earnings, falling to 18 next year. Hold.

GW Pharmaceuticals shares on a cannabis high

Investors have gone potty for shares in GW Pharmaceuticals, the company making painkillers out of cannabis. Their value had leapt more than 50 per cent in the days leading up to yesterday's news that the latest trials show significant benefits to sufferers of multiple sclerosis.

What cannabis campaigners have known for decades now appears to have been confirmed in placebo-controlled trials of more than 350 people. The results come with a health warning – they are yet to be reviewed by other scientists and published in a formal scientific journal – but it does look as if GW is ready to move to the next level. That is to seek UK regulatory approval for its under-the-tongue cannabis spray, with a view to getting it launched next year and available on the National Health Service in 2004.

Sceptics argue that the Government will simply use GW to prove the medical efficacy of cannabis and then use the findings to justify legalising the drug. There is scant evidence to support this cynical view; the Government has consistently said it will approve cannabis for medical use by prescription only. GW is well plugged into Whitehall and remains the only company with an advanced programme to manufacture the drug.

GW is still a highly speculative company. If things go wrong, it has no revenues whatsoever to fall back on. Its management is yet to establish fully its credibility in the City. And profitability remains a long way off. But it has successfully passed another milestone and is talking to large pharmaceuticals companies who might want to license the spray. When that happens, yesterday's share price of 140.5p will look cheap indeed.