Weekend Rebel Review 2nd-3rd September 2023

"Come back in September for a time to remember"

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) ?

Subscribe for free here

Well September is here – will it be Earth Wind and Fire perhaps?  September often signals a very positive change as investors, institutional managers and parliament return from holiday and stuff starts to happen, although it also has a reputation as being the worst performing of the months too.

So many on Twitter and elsewhere have been moaning about how quiet the market is. I think as an investor you don’t want to be thinking too much about share moves but more about market sentiment.  The same stock can trade on a PE of 7 or a PE of 20 at times and the only thing that expands that multiple is sentiment, sentiment to the stock and the macro climate. 

I try to think about how other investors are feeling.  For instance, late 2019 I couldn’t find any shares that looked worthy of putting money into. I watched with amazement as the indexes were hitting recent highs.  You couldn’t break the sentiment of investors no matter what. News came out of China about a new virus that had caused a number of deaths and the market hardly flinched.  I remembered Bird Flu, Sars, Swine Flu, Foot and Mouth and each of these hit the market.  I sold out everything in Jan 2020 as I couldn’t find value to buy anywhere, PE’s were very stretched, while the market was just 5% off its high.  With the event of Covid, I had never been so scared and duly the market sold off.  Once the market did start to fall it was clear many investors didn’t have a clue what to do, meanwhile I sat smugly in cash and just watched and waited, I couldn’t ever remember selling up everything and running to cash right near a massive top.  I don’t know how many hung on too long and watched and sold late, how many sold right at the bottom, how many that had sold near the lows then failed to get the nerve to buy back in.  All I know is it gave many investors a severe shock, even me, while I was sat in cash.  The market bottom was roughly the day of lockdown, March 23.  On that very day I was rushed into intensive care, unconscious,  having lost a massive load of sodium and potassium after 2 prescribed drugs I was  on clashed. I came within inches of dying, 75% of people that go into hospital with this come out in body bags. My GP told me I was their morning discussion every morning as they had never heard of anyone being alive with sodium and potassium levels so low.  I came back out of hospital about 6 days later during Covid and recovered at home as it was safer but it was 2 months before I could even think about shares or care about them, The market bottomed pretty much on the day I went in hospital but I was in no state to even look at shares for another 2 months. To my amazement the market was already bouncing and I had 100% cash to deploy.  This was a huge aid to my convalescence and after a two weeks I was at a new all time high, trading from a laptop in bed!  I had no fear, I was buying stuff back at half what I had sold out at. If I had been compos mentis I would have likely started buying back way too soon.  But for most in the market they were shell shocked, understandably so. This was a huge market shock, people remained nervous and it was probably 2 years before many actually got their nerve back together when Ukraine kicked off. This was another shock and many took a big hit again.  We still aren’t out of this but if you weigh things up, over 3 year, many investors have had more volatility and shock than probably at any time since WWII.  They have now seen inflation fears, interest rate rises but It will only be a small number here  who really  feel up for it, bullish, waiting for that sentiment change. It is little wonder many stocks trade on such beat up multiples. The point is, your circumstances dictate your sentiment.

The people that feel beat up today are likely those that were gung ho bullish in late 2019 in many cases. They are not prepared to buy stocks base on their own calculation of earning and performance estimates or those of a company or broker and for this reason I believe, more than any time before, investors are waiting to hear the fat lady sing at the results in September onwards before buying. On that basis I can’t remember there ever being a September-November results period with so much upside potential in so many stocks. This is how markets work, it is about sentiment and spotting points where sentiment changes.  Charts help see those changes short term but big market bottoms as in October require a ‘feel’ too.  There was a big fall and rapid bounce in October.  I don’t know what it is but when you’ve done this for a long time things don’t repeat but they do rhyme.  It has however been a long, almost sideways slog for a year since.  For anyone who has been trying to get back into the market there has been volatility and reversals.

There are several more factors adding to this imo.  Firstly broker analysis. Of late, especially in small caps, this has never been more restricted. It is near impossible to assess how companies will do without broker notes.  Brokers are also forecasting cautiously and companies are guiding cautiously in many cases – this adds to private investors’ lack of confidence.

Gilts – these are now paying 5% yields and those nervous investors have been running to a ‘safe’ return.  My brokers have told me that selling Gilts to clients is the easiest sell for them all right now.

Leveraged Debt Obligations.  Truss set the ball rolling here when she got in and pension funds panicked in order to cover their obligations by selling shares.  The whole thing has settled a lot but I still think as rates have risen this has carried on to a lesser extend and it is weighing on share prices and will do until rates top out imo.

All of this has led to some of the biggest under valuations in equities in a very long time.  The market will turn at some point.  We have already seen huge bounces in mid to large caps like MKS and RR. puting in huge rallies on trading updates and results. When did FTSE 350 stocks last beat expectations by 20-30%?  These co’s were doing great, it just hadn’t been properly communicated by brokers and institutional and private investors haven’t believed it could happen.

There has also been a huge amount of ‘masking’ going on over the past 3-4 years.  Certain companies may have been doing great as far as performance or recovery goes in late 1999, but they were then hit by Covid.  This happened just as many of these companies had the groundwork in place but then shipping prices soared.  As the shipping prices started declining, supply issues from China became an issue compounded by the energy spike from Ukraine.  All of these things have added costs and reduced sales for many companies. It has been a bit like a pack of cards being thrown in the air – there’s a lot of Aces and Dueces sat out there but having faith in which is which has become difficult until we see some results.  Now supply issues from China are receding, shipping costs are way lower. Energy costs are coming down and many businesses have repatriated manufacturing and supply back to the UK, US or Europe. Supply is more important than price.  You can be the cheapest supplier in the world but if you have no stock you are selling nothing.  Many of these headwinds are likely to become tailwinds going forward. I think many companies haven’t elaborated on how much lower shipping, better supply etc are helping sales, they are using them as a safety net or back up to meet their results.  Eventually this back up becomes so large that co’s know they need to fess up and upgrade guidance imo.  A number of companies have raised guidance heavily, many more will follow in September - November or longer still imo. The coming months will be the most eagerly awaited by investors in a long time and also likely to be the most surprising imo. There will be a lot that disappoint too and disappoint to the down side so remember it isn’t a one way bet. This is all my theory – I could be completely wrong of course, but I’m backing my theory by being 100%+ invested.

Being able to stock pick and buy the right co’s before the big updates will pay hugely for investors going fwd imo. When stocks start to rally sharply, fear turns to greed. Those who have been scared and sat on the sidelines will rush to buy I suspect.

Inflation will be centre stage mid September. I saw this great chart posted by Julian Jessop on Twitter

The BofE have followed Money supply as long as I can  remember be it M0, M1 or whatever the flavour at the time.  Look how inflation tracks it and where it has gone.  That line to me says back the inflation rate to continue to abate imo.  A positive number or two could send the mkt racing if investors feel rate rises are done.

Over the past two weeks the Russell 2000 has made a little bowl which is positive,

Another good chart is shipping costs since 2019

September 21 was the peak at $10361. By Sept 2022 it was down to $4014 so last year’s shipping cost ave was around 7200.

The index now is down from $4014 to $1494 so averaging around $3000 – importers have been saving around $4100 a container this year over last year. Shipping costs are now back to 2018 levels.

Over the last year diesel ex VAT has fallen from around 160p to 125p

There are other that have fallen but while the market focuses on the inflation falling effect of these prices, there are big savings for businesses and boosts to profits which have helped offset wage rises while businesses have raise prices.  I highlight just two important costs but it shows the huge moving variables that investors are wrestling with pretty much ‘guess’ what businesses are doing with the lake of broker guidance or accurate broker guidance imo.

So what about the week gone?  Unsurprisingly as it was the last week of the holidays it was rather quiet.  Perhaps the biggest stand out was Superdry SDRY suspended due to a delay in completing accounts. Dunkerton and the CFO did a short presentation on Investormeetcompany after the results were our where he said the shares will start trading at 2pm again but they never. I wouldn’t tough this one with a barge pole. Dunkerton was guarded on his forward trading comments. He was buying shares in size while the co was trying to fundraise – a sceptic might say he did that to influence the share price, I couldn’t possibly comment.

There wasn’t much else to of interest this week but from the list below you will see that news will be out strongly next week, Sharepad lists lots next week.

Results and trading updates coming this week of interest to me (dates unconfirmed so may not be accurate) :

Monday

BLV  interims

Tuesday

 LUCE interims, JSG interims, AHT interims,  MBH interims

Wednesday

BDEV finals, HFD trading statement, SMWH trading statement

Thursday

CURY trading statement, SPEC interims, LORD interims, MRO interims, MPAC interims, SYNT interims

Friday

BKG trading statement, CCC interims

Get up early next week - I think from Tuesday we are all going to be inundated with newsflow and opportunities.

Enjoy the weekend

Rebel