The Weekend Rebel Review 22-23rd July
What a week
This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest. Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, Everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.
First of all sorry if there was a bit of duplication in last week’s review – I think something went a bit Pete Tong cutting and pasting from Word.
The stock market is just great isn’t it? No two days or weeks are the same. Last week started mourning the loss of the lift on my truck and ended with an 888 RNS giving me a wallop. This week started with news I can get my lift replaced a bit faster and the end was boosted on Weds with a big market rally. Mister market can give you pain from nowhere and for some time but there’s always something that comes along now and then to give you that boost, that little ‘hang on in here mate, you’re right and the market is wrong’ sort of pat on the back. As bear markets end the prolonged pain starts to fade and those happy little uplifts become more frequent.
In last week’s review I focussed on all of the input costs that were fading and why inflation had to come in better than expected going fwd. I put a tweet out on Tuesday saying I expect Weds inflation numbers to beat and the market to light up. On this occasion, unlike many others I was right, but in all honesty it was very much a bet loaded in my favour. The previous month the inflation rate came in flat rather than a decent fall to which the market was disappointed. I’ve noticed with lots of data that if it comes in worse than expected one month the following month is often better than expected and vice versa. There’s two easy explanations. The first is timing, in that something has missed a cut off on the data point and so the numbers come in different to expected. When this happens it often balances itself out the following month. The second point is that when data misses to the downside one month, then the following month many analysts trim their expectations for fear of having been too optimistic, when really it was likely a timing issue. So a month after data that has missed, expectations are often lower and so easier to beat. You will often see this in the US jobs numbers, durable goods etc and inflation in most countries in my opinion.
While the bulls are alive and kicking in the US, in the UK the bulls are only just creeping out of the woodwork, they don’t genuinely believe in most cases. I still say the bottom of the market was in October and the recent lows over the past month are the bottom of this retrace.
This is the best market to invest in that I can remember since 2009, Covid excepted. I said that on Twitter this week and some said to me ‘What? You have to be joking?’ 'I wonder, I wonder, what you would do if you had the power to dream any dream you wanted to dream? You would, I suppose, start out by fulfilling all your wishes, love affairs, buying stocks at fantastic valuations when markets were low. Okay, I cribbed that first bit from Alan Watts and that crumby Cunard sailing ad but it helps to inject a bit of humour. Right now stocks are on historically low valuations and they have got there through several reasons. Firstly we had Ukraine that battered supply chains and sent energy and shipping costs flying, forcing panic and over-stocking. Then we had the inflation spike which triggered the interest rate hikes. Then we had Truss which spiked rates higher and threw chaos onto a lot of pension funds that have leveraged debt obligations who were forced sellers of stocks to raise cash and probably still have been to an extent as rates have risen. How much more bad news can be priced into stocks after that lot? The inflation fall has taken longer than expected and optimism there had given way to pessimism up until Wednesday.
So when would be the best time to buy into that? I’d say when inflation looked like it had topped, when interest rates had built in far higher bank rate than most were expecting. We have all of that built in now in my opinion. What I would also add is we are in the middle of the summer and volumes are much lower than normal. The kids’ summer holidays are now on so that’s even less time for people, traders and investors to spent time watching stocks – the analysts, the punters, they are too busy building sand castles. There’s all the other summer distractions too. Investor apathy in the UK must be at or near all time highs, punters have had two years of being ground down, it takes a lot to crack a joke or feel optimistic after all of that. I reckon this market even prices in a Labour government but as Harold Wilson said ‘a week is a long time in politics’ (he nicked that from Joseph Chamberlain who said ‘in politics there’s no use looking beyond the next fortnight’ by the way). But even that is not so baked in now with the Tories holding Boris’s old seat Thursday night. People vote with their wallets and in a years time inflation might be back down to near 2%, and the Tories will be having a give away budget. Government borrowing came in a lot lower than expected this month – a nice Tory election give away pot being created. The yanks will be in election year next year, notoriously good for the stock market.
What is even better is the FTSE250 is right on the bottom of a long term trend, where better to be buying?
It is only going to take a little confidence to start creeping back in. Mortgage rates are ticking lower, the likely start of a bigger trend. Retail sales are now growing in both sales and volume terms. Stock warnings are much lower than positive upgrades too. So I find this a great time to be very long based on my own risk/reward profile.
A piece of data that caught my eye this week was retail sales:
For the first time since the Covid bounce retail sales are growing in both price and volume. As someone very long in retail and consumer stocks that makes me feel even more positive for what I feel is a sector that has been shunned. When there are stocks like SHOE growing earnings fast and pumping out upgrades of 25%, trading on a PE of 11, and doing huge buy backs and CARD which has been upgrading earnings at a monster rate trading on a PE of 8, generating massive cash and about to start paying a divi, then you know the market has been ignoring retailers. M&S is on a fwd PE of 12 and brokers have been constantly upgrading. These too will start paying a divi this year and look set to enter the FTSE100 next month. There was a time when nearly every income fund had a good proportion of MKS, today there are just 3 funds with notifiable holdings. WOSG – they have doubled earnings in 4 years, still forecast to grow earnings 20% over 2 years, the PE is 13 and the shares halved. I could list lots of others. What I do know is as the market starts to pick up on this, interest rates top out and when Gilt yields are 4% and lower then retail will be in demand as shoppers find more cash in their pocket imo. I won’t be waiting for St Leger Day and the crowd to arrive back off holiday, by then the news is often flowing fast and you’ve missed the build up of what are usually the best months to be invested, ie Sep-Feb imo. Being early means you benefit even more from the magic of compounding.
Here’s the Russell 2000 Small Cap Index
It is continuing to make a bowl and when it breaks 2020 area that will be a one year high and likely to firm faster. UK Small Caps will follow like they always do imo. After an 18 month decline the sector is turning positive. The Dow Transport continues to make a bowl too.
August is just over a week away – I expect a lot of ‘better than expected’ results and trading updates to start rolling out in ever greater numbers going fwd. The amount of Friday warnings and misses have been low which boosts my confidence.
What caught my eye last week.
PMP – dreadful warning. After getting a wallop last week from 888 at least I got lucky here after selling at around £4 after the bowl fell over when they warned slightly. The reaction then was big to such a tiny warning that I decided someone knew more and took the hit. I got lucky not to be holding yesterday – I have Raybould marked now as a leaker and economic with the truth.
I mentioned LUCE last weekend and that they had results this week. The update was excellent, destocking completed, two new businesses well integrated, Shares rose 10% but I expect a much bigger reaction at the next Q update.
I mentioned TRST last weekend. They have their new CEO, Adrian Blair, he has a long history from Google through to Just Eat. The shares rocketed yesterday by over 10% on massive volume again, over 5% of the co. With over $80m net cash and EBITDA now growing, the potential here looks good imo.
FUTR is a former 20 bagger of mine. I noticed the small bowl at the end of the chart this week which I just couldn’t resist, co is doing big buy backs. A PE of 5 looks too low despite the debt. Co’s with heavier debt are likely to be the bigger, faster bouncers in a climate where rates may be not going up as high as the mkt thought imo
MKS – Steamed through £2 this week. They are within a gnats of the FTSE100 entry level with the assessment in August so there may be buying pressure from tracker and income funds going fwd. I’m a long term holder so biased.
GDWN – been very firm this week, hit an all time high, trading update imminent, been doing huge buy backs at this level.
CDGP – Chapel Down Group, English sparkling wines, great update. I’ve pretty much one-bagged these, took profit and what I have left are free carry. Strong growth in Sparkling Wines which is premium, higher margin. The heat in southern Europe will be damaging for the growers there but that is to CDGP benefit. Very illiquid and trades on Aquis.
DOCS – decent dir buy by the CEO
AML – more great strength this week caught my eye, I don’t hold.
After a 6% odd rally on the 250 this week, boosted by inflation news, it was sort of expected to see the week end with profit taking – most punters have forgotten what ‘profit taking’ is. The 250 couldn’t break out in one run but I expect the market to build from here and the 250 to break that resistance next week.
That’s a nice bowl over the last month, if a bit scruffy
Do your own research and know your own risk/reward profile.
Enjoy your weekend
Rebel