The Weekend Rebel Review for August 5th-6th

TEP, FOUR, RR., ASC, BOO, ROO and more

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.Well the rain has killed any hope of doing anything meaningful outside today so time for a weekend review again this week.  There’s a fabulous feeling about the market currently imo, tho many may not feel it. When investors/traders sell off just because they cannot take anymore, when they just want ‘pain relief’ or 5% guaranteed from gilts looks attractive compared to fluctuating equities that may fall at times and not even pay a yield, you know there’s a lot not participating long in this market.  So why do I feel bullish (apart from the fact that I am always optimistic and often get called a perma-bull) ?

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Well day to day trading  has a lot of noise factored in.  Remember that something like 90% of private investors fail to do anything like sufficient research before investing. Most read tips in the newspapers, buy a tip from a tip sheet, scour the bulletin boards for misleading advice or views in many cases and just follow others blindly.  I know this happens, I have served a 23 year paid apprenticeship where I have done this for a living and occasionally I still buy a tip from the press or a tipsheet on occasions, albeit I do try to do a decent bit of verification unless it’s a simple momentum trade.  The problem is there aren’t many momentum trades to latch on to and go long on in a market like this so traders often end up taking small losses which ends up in frustration. If you research a co well you can be comfortable holding while those less informed just sell and ask questions later.

One thing I have learned in those years is patients and research. If you research a co well you have a massive advantage over those that have done scant research.  I see comments on Twitter about co’s I have researched deeply and know the comments are completely ignorant and know I can ignore them, but if 90% of the punters in that stock have done no research, they read this stuff that is so often so wrong and just sell or panic so is it any surprise stocks with great prospects often sell off?  We are in the summer – the old adage ‘sell in May and go away, come back on St Leger Day’ is based on good reasoning and has been said since back in the 60’s or earlier to my knowledge.  What are the chances of stocks having a great summer unless the market is very overly bullish?  People are on holiday, the big decision makers are not about in the City.  Big decisions need a whole board or group to be there to get stuff done and that’s more difficult in the summer.  If markets do sell off in April or May it’s common for the summer trading period to be poor.

 So how do you have any idea if this is just a summer dip or a meaningful long term bear market still in action?  Well if you look at the DAX, CAC, FTSE100, FTSEAll Share, they have all made all time highs recently.  The Dow and the S&P are close to doing the same.  The real weakness has been in FTSE 250, Small Cap and Aim which are way off their highs. To an extent the reason for this has been the fact we have had big interest rate hikes and corporation tax was raised.  There is a misconception that small caps are more vulnerable.  If you have done your research you probably know that this isn’t the case for many.

I will give you one great example this week – Telecom Plus (TEP). These run the business Utility Warehouse – basically they supply gas, electric and telecoms to domestic customers via their own customers generating new customers – it’s a bit like being an Avon Woman for utility services.  On June 27^th they published results

Read this statement

The company were promising double digit earnings growth and an 80p div up from 57p.  Remember co’s are reluctant to overdo a divi if they think there may be any weakness going fwd. So the co was promising good double digit growth and a divi well in excess of 5%.  The shares rallied to 1750p but have come back to 1600p  With 85p divi on offer this year they were still paying over 5% - and they have net cash of £100m and plan to do share buy back.

Yesterday the company reaffirmed what they had promised

The stock duly rose 60p it still offers a yield of 5%+

So why are they so cheap? Well I suspect less than 1% of investors have watched the final results presentation (   https://stream.brrmedia.co.uk/broadcast/6470833ac0e842f4c6ea84c5   ) and most assume the recent strong performance will come off because energy prices are falling, but a bit of research and watching that presentation would inform investors otherwise.  This is a perfect example of the market today – investor disinterest even with a secure 5%+ yield.  When TEP were making 46p eps and 57p divi last year the shares were trading at £25.  Now they have done 85p eps and set to do 105p eps and pay 85p in divi the shares are 1675p, nearly 35% off the high. Double the performance from less than 35% lower share price than the high. A PEG of less than 1 it seems too.  I hold TEP so I may be biased so do your research.

Throughout the market this is common, particularly in mid to small caps, bland reactions to very good results because investors are psychologically beaten up and we are in the summer quietness.  You have to be pretty shell hardened and tough to live through 2 years of a tough market decline.  Most novices and even those that up until 2 years ago where even a monkey with a pin could find winners with ease, have had nearly 2 years of declines.  I remember 2007 to 2009 when I was much less experienced and I found that tough. I think only those that are very minority invested and those that are long in the tooth conviction investors are mainly the ones hanging in there.  Were it not for a couple of large holdings having bids and being heavy long in SHOE which has been a star, plus a couple of well timed calls, I would have found this market much tougher. That is why I am bullish. I believe investors have also been fed a whole packet of gloom by the press, in particular the BBC where any news is bad news.  I read on Friday that there are more Red Admiral Butterflies around this year -  good news ah?  You’d have thought so but it’s being put down to them not migrating so much due to global warming!  If you are in a climate where you are being brainwashed and deprived of any good news of course you aren’t going to want to invest.  But these things eventually change, sentiment changes, humans fundamentally are optimistic and want to embrace good news when they hear it.  But with investing it’s a herd thing and it requires the herd to change direction, which will happen, and not far off imo – the secret is to be ahead of the herd.  Can you shrug off the relentless disappointment in the share moves and tough it out?  If your shares are going sideways or better, if you have researched well and you are not feeling that much pain it will be easier than if you have a number of speculative Aim stocks that you haven’t deep researched imo. Remember too many novices sold out from Covid very late only to see the market bounce, they likely bought back in late too after so much pain. These things destroy investor fortitude.  I try to think how others are feeling and what that is doing to shares and I believe fear is still dominant, and that’s when I want to be as long as possible. I posted the ‘IF’ poem by Rudyard Kipling recently, read it regularly – it is the investors’ rallying call imo.

What caught my eye this week.

4Imprint (FOUR) rose 20% on its trading update to a new recent high, another small cap oversold out of boredom but still doing well. Foolishly ignored the news

RR. results, every bit as good as the trading update just over a week ago promised. Rallied to 207p on Friday – I expect some interesting and upbeat broker notes this week.  Huge momentum here so don’t be surprised if it rallies higher and faster than you might expect imo. If you bought on the trading update despite being up near 20% on the open you are up 10% or better. I think 240p is possible short term but I am long and going to say that obviously. I hold.

There are a number of bowls forming on charts which I always pay attention to.  ASC, BOO, ROO (results Thurs)

I’ve bought all three above based purely on the bowl, as momentum trades. I’ll admit my research is limited but as momentum trades the momentum looks strong.  All three would be hard to love long term as investments unless they are performing much better than expected.

Fear/Green now down into Green. Likely to fall further towards Neutral before the US has a further strong up leg imo

CARD – my first Substack and largest holding started to firm on Friday, press reports Clinton Cards may be going bust.  I’ve been saying this is likely for some times as they close stores and the website is constantly down. 15% the size of CARD who already sell 30% of the cards on the high street should mean circa a third or more of those store sales up for grabs for CARD, 3% extra sales perhaps, if they go pop.

XAR, inline trading update. Co needs to start delivering in H2 on the cash front from the new water basted and high viscosity print heads which are now in production. A small holding but will wait to see the results before doing anything.

CDGP – rallied on benefits from sparkling wine tax charges. A smallish holding that cost me nothing now.

STAF – big fall on poor update but rallied Thurs and Friday on big volume

MER – strong interims, better than half full year forecasts achieved in H1  - I hold

We are now into August. August and September sees a lot of trading updates and results so I expect a lot of positive surprises.  St Leger Day is September 16^th.   That’s my week, there was obviously lots of other news but most were co’s not currently attractive enough for me but I’m sure others had their winners.

Enjoy the rest of  weekend