Weekend Rebel Review -June 1st 2024

Sell in may and go................on to regret it.

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.

A record number of readers last week, nearly 8k, which is massively over anything previous, so thank you.  A much shorter week this week and half term, with very little stock or macro news other than Labour saying it wouldn’t raise VAT. I think that helped firm the market on Thursday.  Both major parties have now pledged not to raise Income Tax, NI, VAT or Corporation Tax so another 5 years of nothing much changing no matter who gets in. So this week I thought I‘d just mention portfolio sizes and a few other bits instead of all the macro charts that haven’t really changed. 

One of my biggest mistakes I’v made, for a long time, was building my portfolio too much to avoid risk.  For many years I couldn’t resist buying a share because it was clearly cheap. It’s a common investor flaw. If I saw news and the stock told a story that said to me ‘these could go up well’, then I’d likely buy some.  This is okay if you just trade them over a short period but when you hold onto them it means you gain another share in your portfolio.  Your portfolio may do pretty well that way but the more shares you have, the greater the best ones get diluted by the weaker ones.  In recent years, in the Covid bounce and in this bounce, I have actively tried to keep my holdings numbers down to around 15 or less, much more strictly than ever before. Now, when something comes along with good news, I try to look at where I think the stock could go price-wise. If it looks like it has 30% or so in it for this year, because it looks really cheap, there’s a temptation to buy.  But these days, the first thing I do is look at my existing portfolio and ask myself, is it really worth buying another share or should I just put more money into those that I have? Is it going to out-perform anything I already have? Invariably, at market lows, there’s lots of potential upside so why dilute powerful, strong growth in your portfolio if you have enough shares to cover your risk profile? I personally feel I can tolerate a 7% hit to my portfolio when I can find so many potential one-baggers.  I hold around 15 shares so if one was blown off the face of the earth I’d be down nearly 7%, if all holdings were of an equal size.  In reality, the stuff I tend to buy have good to half decent balance sheets and cash so a write off of any stock would be very unlikely. More possible would be a 50% fall in a stock which in reality, if I’m holding just a portfolio of one-bagability-in-a-year (OBIAY) holdings, that can be made up in a day on a good day.  I think I’ve only had 2 stocks go bust on me and end up a total loss in 25 years. Watches of Switzerland, WOSG, hit me with a 30% fall in Jan in which I sold out, wiping 3% off my entire portfolio as I was overweight.  That hurt but only for the day or so.  When you have lots of shares moving up strongly, a loss like that can be made up in a day or two, and it was.  Meanwhile, CMCX has risen 150%+ since Jan, making up the lose several times over.  That’s how it is, if I’m buying and holding a fleet of strong potential one-baggers, I know there will be more volatility but it’s to the upside longer term.  This only works for companies with fairly solid finances.  If I were trying this with pharmas, oilers or miners then they are far more binary. I’d want to study and invest in just one of those sectors and learn the sector really well and how to value the companies. I’d also keep a far larger spread of stocks as any winner could be huge but the number of failures far greater. However, if you are buying a spread of consumer, industrial, engineering stocks etc, that you have researched and are convinced of large upside while having decent cash position and balance sheets then I think at lows in a market, keeping the portfolio tight and limited in numbers makes sense.

This is at market lows of course, as bull markets get longer in the tooth, OBIAY stocks become harder too find so it may be more difficult to find OBIAYs, it may then be worth letting the holdings numbers expand to reduce risk then.  But for now, I’d say it’s worth thinking when you next go to add a share to the portfolio, is it better to increase one of my existing holdings instead?  At the end of the month I’ll do a half year run through of the main stocks I’ve held through the first 6 months of the year with charts. In recent years, and particularly recently, it has boosted my gains a lot.  Through last year, Rolls Royce and MKS made up nearly half my portfolio, in fact more than half at one point. I bought RR. 10 months ago @ 170p so it is up nearly 150% in that time on my first buys.  M&S I held for near exactly a year and doubled my money on my first buys. A great hold for many, I just want OBIAY stocks and have added to my others.  One other thing, OBIAY stocks are great but unless you go all in at once, it’s often longer to see your whole holding double. Your first buys one-bagging is the easiest part.  We all tend to add to holdings as we get more confident. I try harder to go in heavier now as soon as I think I’m right about a stock so it maximises the gains. I nibble into stocks where I’m more cautious. If you add to your gains along the way then your total percentage gains when you sell are often short of one bagging, unless they run into multi-bagging as you hold longer. Nothing wrong at all adding to positions but don’t get disappointed when your first buys have one bagged but you look at your total position down the line and you’re only up 60-70% say, – that how it works.  I don’t add to ones longer in the tooth before looking to add to ones that are young in the one-bagging process – the earliest part of a recovery is the best and most lucrative.

After pointing out the recent changes in small cap indexes it’s interesting to see how these have gone:

Up to last weekend, the Aim 50 index has risen 1000 points from the low, a 30% rise, nearly half that rise has occurred in May while the Aim 100 has done similar but slightly less.

The FTSE250 has only managed 2% in May up to last weekend.  The FTSE Small Cap has rallied 20% from the lows:

Aim All Share Index has risen just over 20% in that time too.

All of this clearly shows money flowing towards the small cap ends of the market, at last!

It has been a good week and a great May, painful for anyone who did sell in May and go away.  Year to date my portfolio is up 27%. FCH has one-bagged since Jan, and CMXX has nearly two bagged and after adding constantly since, they now form well over 30% of my portfolio. IGR has nearly one-bagged since the start of the month and is up 40% from when I bought on the open, on the day of the trading update – when it was up 35% at the open – sometimes you know you have to just bite the bullet!  MPAC has one-bagged since the start of the year but I never bought back in till Feb so I missed over half that rally, so only up 40% from where I bought in.  W7L is up 30% from the start of the year, AVON is up 60% from the start of the year. GNC is up 40% from my buy in April. LIO is up 40% from the start of the year, LUCE up 40% year to date.  And last but by no means least, RR. is up 50% year to date.  That’s where the bulk of my gains have come from this year. The major downers were WOSG which cost me 30% on that holding and HFD which hit me for 1% on those, back in January/February, not an auspicious start but that’s the way hits go, you can’t time them.  I’m pleased to have recovered well and will do a full half year review at the end of June.

UKStockchallenge.

The UKStockchallenge is a great bit of fun if you have never entered.  It is free. There is a monthly challenge each month and a yearly one in Jan on top. It is run by “Typo”, a trader friend of mine and others who has been around here investing and trading since before the millennium on Hemscott (anyone remember that?)  There is no phishing, spamming or email harvesting, just an honest bit of fun us diehards have been having for 25 years nearly, pitting our wits against the market to pick 5 winners for the month. No prizes, just kudos.  Why not give it a go?

https://www.stockchallenge.co.uk/

Click “Entry Form” at the top. Entries need to be in before 6am Monday to get into the June challenge. Give it a go for June!

You’ll also find the latest “FTSE Ranking” there which is useful to see who’s likely entering or getting kicked out of the indexes before it happens.

I thought I’d done well this month being 15.8% up but came slap bang under BBD, Go Girl and Aston Girl – a Twitter foursome with Aston Girl on top – so to speak. Just over 1% between the lot of us.  Seems a lot have had a good May – 75% were in profit this month.

Now’s the time to really concentrate and make sure what I’m holding are in the right sectors and still have one-bagabillity. I always re-evaluate, don’t fall in love with a winner – shares are casual affairs, not marriages – you’ll never get an anniversary card or roses from a share because it loves you, so I avoid falling in love with a share, stay mercenary.  If rates do fall, it’s cyclicals and consumer stocks that are likely to outperform rather than defensives, as they always say. I would never take this too literally, if you are a stockpicker – there’s always good cyclicals performing well somewhere.  While we were going through Ukraine and soaring interest rates, when defensives should be the winners, among my best performers were CARD, SHOE and MKS. Retail stocks which all one-bagged pretty swiftly, and more. It’s better to have a great stock in a poor sector than an average stock in a popular sector imo. Stock picking is very important.  Lots of things give good companies away that may stay hidden. These days companies and brokers like to guide low. This suits companies as they keep a cap on forecasts making it far easier to beat.  Also, if a company is doing buy backs, why have highly aggressive forecasts out there and pay over the top to buy the shares back? For this reason, many companies are going to beat forecasts imo, especially as things pick up.  The real issue is that if you just ‘punt’ you are never going to be ahead of the crowd, you’ll get some right and some wrong and the weighting towards winners will likely be modest.  Digging deeper into companies, finding out as much as you can, studying the numbers over and again in various ways helps you find the real stars.  One good example is to watch the trailing 12 months earnings.  Brokers are often guiding low but when the forward earnings forecasts show this years earnings will be less than the trailing 12 months then pay attention.  That’s ether telling you the company isn’t doing very well but more often than not, if the company is upbeat, then the forward earnings forecasts are way too low. That’s the way you do better as a stock picker who researches, rather than punting a trend say. There’s more work involved but work pays well in this game.

I have half a dozen stocks with updates coming in June which I am highly looking forward too. June and July are big for results and updates. If you are holding 15 stocks you can expect 5-8 or more updates from each one during the year over various things from results to trading updates to deal news. Let’s say 100 news points a year so 7-8 events each month throughout the year, plenty to keep you excited, interested and stave off boredom and the temptation to churn your holdings just out of impatience imo. 

On to stocks I hold and have interest in:

I love watching company webcasts, it’s my Netflix and free.

Interestingly I was watching the Greencore web presentation again last week and there was interesting comment from the CEO Dalton Phillips. He was saying that because of the rise in the living wage by over £1 an hour it has made them look at automation more.  That rise makes automation much more effective regarding cost benefits. Where automation would possibly have made minor savings over labour costs, now it’s far more meaningful with staff getting what, £2,200 extra a year. So that got me thinking about MPAC.  They must be a prime beneficiary of the rise in the living wage and all companies with production line will have been affected.  Couple this with re-shoring and MPAC just looks like being in a prime position for growth imo.

De La Rue, DLAR announced they were trading inline and also their strategic review plans.  They are proposing to sell either or both of the currency and authentication businesses. There was no indication as to what there are worth so hard to know if there’s value in the shares but one to keep an eye on imo.  I don’t hold.

Interesting news from Funding Circle this week.  They are doing a restructuring which will cost £5m this year but save £15m going forward. This is the gift that just keeps giving. Ignoring the fact they have £180m unencumbered net cash The UK loans business made £6.5m pbt this year.  They made £5m of that in H2.  The sell off of the US business will get rid of most of the losses the company has been making and could bring in a lot more cash, seeing they have an SBA Banking license recently awarded, one of only 3 issued in the last 40 years. They had income in the US of £32.5m

The Flexipay Card in the UK is still losing money but growing transactions 4 fold to £234m.  Forecast to do a £3.24m pbt loss this year and £22.9m pbt pro next year, making 5.18p eps. If the US gets sold and they save another £15m from the restructure then earnings could be way higher and they could have even more cash.

They are buying back £25m shares because in their words, the business is ‘materially undervalued’.  Less shares means even higher dilute eps.  Way, way off the high and focusing on very profitable UK growth now.

They also had this at the end of their news:

“Year to date performance is in line with expectations and the Group remains on track to meet full-year guidance³. In the US, discussions regarding a potential transaction are progressing well and an update on the outcome will be provided in due course.”

Hard to calculate exactly what all these changes will make but it looks potentially game-changing to the up side in my opinion. FCH are now nearly double the price they were when I did the write up here on April 26^{th but still look cheap imo}

At the start of May, D.Bank started coverage with a 250p target, though I have not read it, I would love to though. Link:

https://cockneyrebel.substack.com/p/weekend-rebel-review-sat-26th-April

I sold all my XAAR, XAR a while ago after constant delays and misses.  However, investor Richard Griffiths has taken 3% this week.  He doesn’t get them all right but he has more than his fair share of good luck so worth keeping an eye on them.

As for this week ahead, of the shares I hold, CMCX, IGR, LIO, W7L have updates this month.

 I’ll also be watching for Filtronic, FTC, the Low Earth Orbit (LEO) satellite tech is interesting and I have been reading up on it a lot. Board changes too. Perhaps a new board and a new market is what can finally get this co out of its long term rut.  I have a starter position in these only but with them saying next year will be significantly ahead and brokers now forecasting 2.7p, I wonder if that’s everything priced in?

Don’t forget, just a bit of diarising here, about my week.  These aren’t tips. I’m just a private investor and this is just my opinion. Know your own risk v reward and do your research as it’s you pressing the buy and sell buttons.

Cockney Rebel

Twitter: @rebelHQ