Weekend Rebel Review Jan 13, 2024

A new all time high for the S&P beckons

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. Please do your own research, know your own risk profile, understand what you are buying and make your own educated decision to buy and sell.

Welcome to this weekend’s Review Rebel.

Market volatility has been a bit sharp over the start of the New Year as investors climb that imaginary ‘wall of worry”, but most of the macro stuff looks good. Personally, I’m more excited by the days getting longer – next Friday, if it’s a clear day, the mkt close will be in daylight. I have a theory, very unscientific, that markets do better on bright sunny days where people feel brighter and more optimistic – bulls need optimism in my opinion. 

While there was little macro data at the start of the week, Thursday saw the markets spook because CORE PCI in the States fell from 4.0% to 3.9% when the markets were expecting 3.8%. Give me a break, that’s nearly a rounding error.  All of these numbers are subject to revision and when you get a month where the data comes in stronger than expected, then I always prepare for the following month being weaker than expected. Or at least weaker than might have been.  People over-pay ahead of Christmas when they ‘need’ stuff and the prices come down in the January sales and there’s often an overlap imo.  Forecasting inflation around Christmas is the toughest time, so many competing factors in counting it.  The data needs to be watched over months and to that extent, inflation is still falling.  So a mediocre start to the year wasn’t helped and the UK sold off 1.3% when that data came out – then as always, the US who’s problem the inflation would be, then recovered a lot after our close, leaving us to take their pain, isn’t that always the way?

There has been the start of a number of companies in the UK beating and the price soaring, I have noticed news from CMCX, TRST, MER and WNWD all rallying 20%+ and there will be lots more, the UK is cheap  imo.

As far as the macro goes the fear greed as come back somewhat.

This is good news if we are going to see the S&P break out to all time highs and get markets galloping. Anecdotally, I’ve heard more traders and investors saying they are now making money again.

The bowl on the Vix is not turning up, just stretching out so nothing to see here, but I’ll show you it anyway.

As expected, the S&P had its little pull back and now it’s having a push at the all time high.  The US is closed on Monday but my suspicion is the yanks come back on Tuesday and start to test that high.  That’s a nice, big scruffy bowl on the S&P too, below.

When the S&P does break out it won’t be long till the UK FTSE250 tests these two lines either imo . A break out to all time highs will set the bulls snorting like a red rag being wave.

We have UK CPI Inflation data on Weds and if better than expected we may be on a nice upward path. I saw this this week:

“Deutsche Bank, Investec and Oxford Economics are now also predicting that UK #inflation could hit the MPC's 2% target as soon as April”

Looks like all the brains have been working overtime, let’s hope they are right.

Small Caps in both the Small Cap Index and Aim are more oversold than anywhere. After a 2 year+ declined of that size, then this is where the real values will be found imo. I expect the Small Cap Index to be the star index over the next 12 months and hopefully Aim will join it the strength. I will buy Aim value, with divis, director buying and decent balance sheets - I can afford to be fussy here and not get lured into dreamer dross.

It was a week that started with so much promise but ended up punching me on the nose. The first full week back and I wasn’t expecting any news of significance when spread-bet company CMC Markets (CMCX), came out with a trading update.  B2B trading has been far better than expected and profits would be 12%+ ahead of expectations.  Sometimes you make your own luck.  I had bought a decent chunk the week before based solely on the bowl on the chart and the trading update due in 10 days or so and it had come out early.

A lovely 20%+ gain.  I had bought them for a trade but having read the statement I have decided to hold on. Directors have been buying quite recently and with that upgrade they could be very cheap based on how they are a geared play on the stock market volume. They say the B2B side of the business is strong and this is a geared play on a strong market.  If the private investor becomes bullish then both sides could be driving big earnings upgrades. Plus500 came out with a ‘ahead’ statement on the same day too so it looks like an industry thing.

Tuesday was somewhat dull but Wednesday more interesting. I had decided to sell Marks Electrical (MRK) two months ago after looking at them again and again. I hadn’t expected bringing delivery and installation staff in house would add so much cost. As the market has picked up in general I wanted the cash for elsewhere. As it happened, I dodged a bullet as they warned on Wednesday and the shares fell 25p.  It’s a shame because I really like mavericks like Mark, the CEO, guys prepared to give it a go. I think he has the nous to succeed but it may take a bit of time but I’ll keep it on my radar. I’d like to back him again when the time is right.

More interestingly AVON had been seeing a lot more interest over the past fortnight and on Wednesday it really took off, up 5%+. I noticed that day that brokers had tweaked up forecasts, eps of 60.9p was the new forecast, about a 1.5p lift. Not a huge lift but the fact they are lifting before the trading statement with the AGM on the 26^th is interesting and that is 12p eps higher than where they stood in November.  The company has cleaned up the balance sheet now and with Jos Slater only at the helm for just under a year I find that interesting. Brokers have them as Buys to Strong Buys.  Goes xd on Feb 8^th with the Capital Markets Day. AVON gave a lot back on Thursday but after breaking out on the chart and a good curve up too. With Ukraine and Israel unrest, Yemen now getting involved and global protests requiring police and first responders, helmets and gas masks seem to be in the right place at the right time for me. In fact the defence sector as a whole including RR. Imo. Obviously I’m long both so do your own research, I may be biased. BAE, BAB, CHG and CHRT are also likely beneficiaries of greater defence spend imo.

AVON: - this is pence, not cents by the way for 2025. 42.6p eps 2024, 61.2p 2025.

Thursday, saw a good trading update for TRST, another one I was holding for a trade – it rallied over 20% and received a 25% broker upgrade. Berenberg now has a 200p target

The one I was waiting for though was MKS and they had a very good update.

You can read the full RNS wherever you get your news.  There is a note of caution there but they would be wrong not to highlight that going forward geopolitical events and higher wage costs may be head winds but that is the same for most businesses.  With loads of traders that have been riding the rally they decided to sell, they are not interested in detail.  The RSI was high and the stock had broken out through the uptrend.  There’s never any mention of margins in these trading updates and at the interims the co margins had already exceeded their targets. A lot hangs on where those margins are after the sales and sell throughs but I have noticed Thursday on Stocko that consensus eps has already ticked up to 22.6peps for this year and 24.9p eps for the coming year, a fwd PE of just over 10 on a company which Archie Norman described as being “in the foothills of what they could achieve”. As we go forward, debt should fall sharply, taking MKS more and more towards net cash. Interest payments will fall on both lower debt and lower interest rates. The rating agencies will more and more raise their credit rating and the divi will rise nicely.  All of this isn’t priced in on a PE of 10 and the growth rate imo. Each new and refurbed store achieves 30% more sales from 30% less floor space, M&S have around 100 to do over two years and all those recent ones before Christmas start to add to this years sales. I’m holding still and expect those that have been longing to buy into a dip to drive the price back up before too long imo. I did however trim my holding on Friday by 30%. The position has become large and I have to ask here, can it one-bag in a year after doubling?  It will likely not but it’s possible. The shares I sold have doubled in a year so it’s wise to trim a bit, the rest I will run. It has been big, fast gains but I think there’s lots more to hold for. Next trading update is the results in May, unless they spring an unscheduled one before hand.

Yesterday’s (Friday) highlight was a trading update from Warpaint London(W7L). The cosmetic co raised guidance again by 12%. This means they have grown earnings 100% for two years running. Even with covid they have grown 2019 eps of 2p to 18p in 2023, that’s 100% compound over 4 years.  I remember the likes of Asos, BooHoo, Fevertree hitting growth far less exciting than this and being on PE’s of 40 to 50.  The stock is trading on a PE 22, a PEG of 0.2, they have no debt at all, not even a photocopier on finance as the CEO likes to say. They pay a 2.7% yield. In my opinion they are only this cheap due to the fact broker forecasts are hideously too low – now forecasting flat earning for the coming year – like so many, brokers are forecasting very low and letting co’s beat big.  They rose 18p today but would likely have been more were there not a seller around.  I think if I looked for 50% earnings growth this year I won’t be far away.  27p perhaps? That would be a PE of 15 for 50% growth.  The growth rate will see them re-rate to a much higher PE I believe, especially as the press start taking to them and there’s a good chance a large cosmetic company will make a move on them as they are now expanding fast in the US.  What a chart!

A one bagger in one year?  Quite possibly if not probably by my way of thinking. I bought in after watching this presentation on Youtube - if you are interested, this is a great place to familiarise yourself with the co - a must watch to get an Idea of the CEO and his ability, seems a shrewd guy imo

I put some of the M&S money into more W7L on Friday. I also added to Ashtead Tech. AT. and AVON.  Ashtead Technology (AT.) is another 100% growth p.a. story with a trading update this week - I hold – the chart there is re-rating too. They supply everything subsea to rigs and wind turbines. Directors have been selling recently but directors do need to sell some at some point.  The CEO sold a third of his holding, but retained two thirds. The CFO sold 20%.  Directors can’t sell all their holdings in one go even if they wanted to, they have to sell when there are buyers around in size. I dare say they could have sold far more had they wanted to. We all want to enjoy the money we make from investing at some point. AT. recently acquired Ace Winches for £53m and the company was doing £10m operating profit.  Operating profit last year for AT. £18m so with no synergies at all Ace should add 50%+ to earnings imo. They say it will be materially earnings enhancing. Likelihood with synergies and AT. client base they can double that.

All in all a very volatile week and I was up and down and all over the place but with the profit taking in MKS and the others selling off, I was down 3% on  Thursday – not nice but I’m used to volatility. I ended the week down 3% from the start of the year, not going to double my portfolio from October to October at this rate am I, but then I can easy have 3% up days or more too so I’ve not given up, it’s par for the course really.

We have what will be the busiest week of 2024 so far next week.  There’s big numbers of co’s reporting. These are the ones I’ve tagged, there will be more, possibly LUCE.

There will be others and the dates are not confirmed unless stated. Bold are what interest me most.

15^TH LSL           trading statement approx

15^TH AVV         trading statement approx

15^th BWNG      trading statement approx

15^TH  BAB        trading statement approx

16^th CARD       trading update approx.

16^th AT.            trading update

16^th OCDO      trading update approx.

17^th MIDW      trading update confirmed

17^th GFRD        trading statement confirmed

17^th ALU          trading statement approx

17^th EQLS         trading statement approx.

17^TH 888          trading statement CONFIRMED

17^TH DPLM       trading statement AGM

18^th DNLM      trading statement confirmed

18^th KIE           trading update confirmed

18th ZTF          trading statement confirmed

20^th BWNG      trading statement confirmed

18^th MSLH        trading statement approx.

18^th WRKS       interims confirmed

19^th DFS           trading update conf

19^th JDW         trading update approx.

19th FOUR      trading statement confirmed.

That’s about it, looking forward to the S&P and FTSE250 cranking on up to new levels this coming week. I’d reiterate that I’m just a punter, most of the stocks I mention I own so treat me as biased, unobjective and talking my book. Do your own research and be sure you know what you are buying. I do often get things wrong.

Bull Rating 4  (out of 5) currently

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