Weekend Rebel Review, Dec 9th, 2023.

A stock-pickers bull market

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, although 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:

It’s been a further interesting week and the markets are moving pretty much as expected – which should worry me!

The stand out for me recently has been the number of co’s being taken over, it’s one or two a day or more.  Most have been in the small cap arena but I doubt it will be long before a real biggie happens and sets the market alight.  This all goes to show how undervalued the UK is, by the premiums being paid, but look at the indexes and they are hardly moved compared to the S&P and the DAX.

FTSE250

S&P

The CAC and the DAX are up around 35% since last October lows, the FTSE250 is up around 12%. I think this is about to change.  The FTSE250 has started to make a small bowl over the past month.  All the talk now is of interest rate cuts.  I know inflation is still high and in the UK higher than elsewhere in many cases.  But think about this, inflation took off quick and we were in a situation after Ukraine where ‘ransom prices’ existed due to such sudden supply shock.  As that abates what happens?  I think we revert to the recent past when online search engines and the internet drove down prices through increased access and price comparison.  What will happen with AI ? Won’t it be used not just to find the best prices but go out and negotiate the best price?  Right now you can search the web as a business and find good prices but what about going out there with an order for say 10k widgets and offer it out to the best bidder, even auction the contract and let an AI bot do all the work? I think we are entering an era of even stronger bearing down on prices and the market will rumble it eventually but in the meantime we will see better profits and lower inflation than expected, and that has been the story of tech for the past 30 years.  In 1980 when we got married, we had one of the first domestic microwaves and used to invite people around to be amazed by the ‘magic cooker’, it cost us £200.  Today you can buy a microwave every bit as good as the one then, in Argos, for £60! Suggest that to someone 40 years ago and they would have been in fits of laughter.

I’m still positioned 100% invested and expecting big market rallies going fwd.  This would be natural after a prolonged bear market.  The S&P closed pretty much on its July high last night, another few points and it makes an 18 month high and just a few percent from an all time high.  First sniff of a rate cut and cash screams from gilts and fixed interest into equities imo.  Since the low this October 26^th the FTSE250 is up 12%, the FTSE Small Cap Index is up 7%.  I expect to do double what the best of those indexes achieve in a bull market.  From the low in October I’m up over 23% now.  I hold a portfolio of around 12 long term holds, all of which have to have the ability to one-bag in a year in my view. The beauty of compounding and being full invested right at the bottom means you can make spectacular gains.  Being up over 23% in 5 weeks from the Oct low, I need just a 15% rise between now and year end to be up 40% from the October low. That would mean something like a 6% rally in the FTSE250  by New Year for me to achieve that.  If I did manage it I would enter the new year with a larger portfolio of such a size that I’d need a 40% rise in it by October to have doubled my portfolio in a year from October gone. A 20% rise in the FTSE250 January-October doesn’t seem an impossible task. All very bullish thoughts and may not happen of course, black swans etc, as John Lennon said, ‘life is what happens when you are making other plans’, but I think you have to have a bull vision, a target, something to focus on so that you don’t keep selling and trading and you can see a long term picture.  If I miss by 50% I’ll be up 50% which isn’t bad in a year. At the bottom of the Financial Crisis I was down over 30% over the 18 month fall but made the whole lot back in the first 3 months after the bottom.  I wasn’t fully invested going into that bottom tho, I just started buying aggressively once I saw the bottom.

I know this is all a bit of an aggressively bullish view but I like to take a bold approach and it’s right for me but everyone else has different life and financial circumstances. What it does highlight tho is compounding.  Getting a good bounce at the outset of a bull trend, where you are fully invested, soon compounds.  A one-bagger only has to rise 50% again to double your original investment.  For that reason I like to go in big when I think we are at a bottom.  I did the same last October but the bull run never lasted. It didn’t matter tho because the circa 25% rally it made, boosted my portfolio a lot and meant the following give back over the year wasn’t as painful as missing that rally and starting to buy in higher up.  The same might happen again but I’ve built a good ‘profit buffer’ over the past month that means any fall (if I’m wrong about this being the bottom) won’t be as painful again.

Here is the latest Fear Greed

Well over into Green now but the point I get scared at is when everyone is well over into Extreme Greed, at around 90+. What worries me and what could go wrong with my big ‘100%plan’ above?  Well look at that bowl on the right of the VIX

If that bowl played out and curved back up to 22 I’d take a real kicking.  I’m working on the basis that the VIX is about as low as it can go so it won’t curve back up but continue to bobble along at this level for some time.

The Russell has had a great run, up some 13%+ from the recent bottom and the Dow Transport has mirrored it:

All in all I feel pretty cool and recent gains give me some fall back protection anyway.

Non Farm Payroll was out yesterday and the numbers were strong, the forthcoming rate cuts that the mkt is suggesting doesn’t seem to be derived from a fear of recession on those numbers imo.  So I’m looking for a decent rally going forward. This has the potential to catch bond investors out as many have been saying the yield curve was predicting a recession, and if that’s wrong then the rush to equities could be all the greater imo.

So onto stock picking and this really is a stock picker’s market.  Funds are yet to join in in the main and indexes while making 6-10% really hide the individual stock progress imo.  RR. is up nearly 50% in the 5 weeks from that Oct low, MKS 20%, TRST up 45% and so many others.   Meanwhile if you were in LLOY or BARC you might be up just 10% and stuff like Shell down 10%.  This is why in markets like this you need to look for the right stock in the right sector at the right timing.  I Bought WOSG about a month ago, just before the recent trading update and have been adding since.  This week’s results were bang inline with the trading update a month ago. 

They revealed their Long Term Plan then to 2028 for a doubling of sales by then.  That would mean 16%+ compound from now till then.  Their previous plan is currently being beaten buy £200m up to now so it’s not just words.  These have a fantastic sales and profit CAGR since floating and are a stock I’ve been looking to buy at the bottom for some time.  The most important thing I would highlight – the co revealed in the results that sales this year will be £1.65-£1.7bn.  The sales were down £4m in H1 @ £761m.  Last year sales for the year were £1.54m.  On that basis the co is saying they will do £110-£120m more sales this year than last year and all those extra sales are coming in H2.  They did £889m sales in H2 last year, so basically H2 sales this year will be around 12% up on last year.  The market hasn’t grasped that imo.  There has been several broker buy recs out  over the past month tho:

SOCGEN RAISES WATCHES OF SWITZERLAND PRICE TARGET TO 864 (770) PENCE - 'BUY'

RBC RAISES WATCHES OF SWITZERLAND TARGET TO 950 (800) PENCE - 'OUTPERFORM'

STIFEL RAISES WATCHES OF SWITZERLAND PRICE TARGET TO 690 (590) PENCE - 'HOLD'

GOLDMAN RAISES WATCHES OF SWITZERLAND PRICE TARGET TO 830 (800) PENCE - 'BUY'

BARCLAYS CUTS WATCHES OF SWITZERLAND TARGET TO 1035 (1060) PENCE - 'OVERWEIGHT'

WOSG is up 30% from my buy just before the trading update. I’ve added a lot since, higher,  so the average of my holding is up more like 20%.

I moved a small bit of my investment in CARD to WOSG as I could see investors relate more to WOSG than CARD at the moment.  Punters are looking for negatives in CARD, probably because they don't realise they make their own cards, or because they hear the postage has gone up, or living wage etc, all noise I suspect.  While it has come off from the high by 10% and M&S and RR. have risen so much, CARD has now shrunk to under 20% of my holding as others have got bigger.  I took about a quarter of my CARD to buy WOSG.  All in all WOSG has become my biggest holding now, RR. and MKS following with CARD down under 15% now.  Quite shows how being in the right shares at the wrong time can cost your portfolio.  I was up well over 100% on CARD at 115p but over 6 months they have been dead money.  That was a fine place to park cash when the market was falling but now there are so many great opportunities about that are on the up, then 20% holding in CARD was too much to have parked until after Feb possibly. I still very much like CARD tho, it’s just other stuff growing so fast that’s shrinking them mainly. I never fall in love with a stock, as Andy Brough says ‘it will never love you back’.  No matter what, I invest wherever seems best. The problem with being a long term holder of a stock that has done you proud is that you can become sentimental. It has looked after you and so you feel you owe it to hold onto it.  I would find it hard to just sell something like CARD but it’s easier to trim.  I may well end up selling some WOSG at some point and buying back some of the CARD I’ve sold, if the stock firms or Teleios clear.

OTB put out their results on Tuesday. I really should have bought before the results, looking at the bowl starting but I never.  The results were very good and  upbeat.

They spent a lot of cash and time last year updating their software systems.  Now that is sorted and they are targeting more expensive holidays with larger add ons, their sales are soaring, as are profits.  The co is so confident it will return to paying a divi this year.  With a new CEO and CFO and the old boss Simon Cooper moved upstairs (having bought £2.5m worth of shares in August), the stock looks a perfect recovery play imo.  I’ve bought a large stake amounting to about 8% of my portfolio. The stock has high beta and I’m up 20% on my initial buy and having added more on Weds and Thurs my average gain is around 15% so far, but I expect this to be a long term hold and go a lot further imo. The co has record total transaction value and other great numbers like a record order book so it’s worth waching the results webcast:

https://media.idigitalcontents.com/media/o/on-the-beach/fy23-preliminary-results-webinar.mp4

MKS and RR. trundle on making new highs – several brokers came out with targets of £4 for MKS this week after the Capital day.  W7L, AT., and a number of stocks are making all time highs, that’s all very positive.  I think in the coming weeks, both private investors and funds are going to get a huge bout of FOMO which will stir the rally even more imo. There are lots of small caps starting to stir and I’m watching a number of these. If I do find something that looks outstandingly cheap I will happily take a bit of profit from RR or MKS to buy.

I hold DLAR which has risen 20% since the recent market low.  Results are due around 18^th Dec approx., One really interesting thing there, apart from Richard Griffiths acquiring a large stake, is a recent report this week from the British Retail Consortium saying for the first time in many years the use of Cash is rising, The Bank Note Printer should be benefitting from this imo.

Shopping with cash rises for first time in a decade

https://www.bbc.co.uk/news/business-67636571

And that’s it for this week. News drops off a bit between now and new year as the markets tend to go quiet over Christmas but it’s often the time to spot a great bit of news that comes out while most are away from the screen.  Watch out for bad news to be dumped into the Christmas and New Year breaks in the hope investors don’t notice.  I think we are moving into a great week and perhaps a Santa run so let’s see.

Thank you to all the recent subscribers, I went through 1600 this week. I’m pleased I gave up my chatroom a year or so ago, it has allowed me to do much greater research with the time I now have and find more great stocks even earlier. But please remember these are just the thoughts of a private individual and while I have done this for a living for over 20 years I am not a qualified analyst, I have no degrees, I’m just a guy winging it and I could be completely wrong so make ture you do your research, you make your own investment decisions.

Rebel