Weekend Rebel Review November 25th, 2023

Just buy the ********dip! ?

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) ?

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Good morning, and welcome to this weekend’s review.   I posted this in last week’s review:

“The UK market and the US were right on chart resistance lines then and traders here in the UK sold off.  All traders are interested in are the charts mainly.  They got a bit of a shock tho because the US kept rallying.  That is one of the best bull signals you can get. “

The bulls are buying any dip so much so they aren’t even waiting for the dip!  They know they need to get long if they are going to build any sort of a position so it’s a matter of clenching your buttocks and just buying for many, hoping they are not buying a short term high. Here’s the S&P - up over 10% in a month with hardly a retrace.

FOMO (fear of missing out) is driving the price up sooner and faster.

UK investors have been sat there, like rabbits in headlights, yet again, wanting to buy but scared by the run on the S&P triggering a sell off when it pulls back.  I think there will be a pull back on the S&P at some point but when it happens the buyers will pile in on the dip. I doubt any dip will amount to much more than 1% at most, unless some real bad news was to hit the wires. I can pretty much guarantee there is a high proportion of investors, wanting to buy stocks but waiting for a pull back on that huge S&P rally, in fact several have said to me that they are.  If that is so then it stands to reason that the next leg up is likely to be sharp and strong due to all those waiting.  This happens in many stocks too. How often do you see a co announce great news and the stock shoots up 20% or so but then it never gives anything much back because so many recognise it’s going higher, so they buy the first dip, rather like Rolls Royce recently:

If you never bought that first rally from 154p to 194p then you hardly got a chance to catch a meaningful dip other than a few percent which would have been difficult to time. This is why in bull markets you get big legs up and small retreats, you get the reverse in bear markets.

In the UK I have been seeing a lot more director buying and stocks which fall on mediocre or poor news then bounce intraday.  This is investors building positions imo, even if the short term news is poor they can see future improvement and just want to build a position.  Volex on Thursday was a classic, mediocre results, big drop then a bounce mid morning - a nother bull market characteristic.

After good US inflation numbers on Tuesday we had the Autum Budget Statement on Weds.  There was a few bit’s in there that were positive for business but it wasn’t met with a great move in the market – The UK was up around half a percent.

With the US closed for Thanksgiving on Thursday, the UK opened off quite heavily until the PMI data came out, then it firmed.  Looks like the UK is in expansion with numbers above 50 – unlike Europe… and despite Brexit. You won’t hear that on the BBC.

The stand out this week is the VIX – it has plunged to the lows, fear is dissolving.  You need to watch this index, as it starts rising up into the high teens it can mean market weakness is ahead, when you see it spike and then come off a bit, that’s often a top market buy signal. For now this looks a screaming buy until the chart trends somewhat higher for a week or two.  Of course sudden incidents like Ukraine can snap the Vix up out of the blue so it isn’t foolproof.

Fear/Greed is well into Greed now – I get cautious when this gets well into Extreme Greed. Remember this is based on the US and the UK fear/greed is likely way lower but we do get influenced by the US.  The UK doesn’t seem so in unison with the US these days.

I try to do everything to take emotion out of investing.  I’ve mentioned making sure I have enough aside to live for 2-3 years without needing to sell my share.  There is another psychological tactic I use and that is pre-imagining the likely worse case scenario -war-gaming for portfolio managers.

For instance I now try to keep to 10-12 max long term holdings. Let’s say you had 10 holdings that made up exactly 10% of your portfolio each.  I accept that buying recovery plays often goes hand in hand with volatility.  But I know that if one of my stocks were off 10% in a day, the portfolio is only down 1% in total.  My portfolio can be up or down 2-3% every day, I’m not bothered by that sort of volatility, and if you are picking good recovery stocks and oversold companies then the up days are far more common than the down days. If a holding is down 10% odd in a day it doesn’t make me panic or think just sell.  Quite often the rest make up that fall in a day and some. My long term holdings will be well researched too, so I have that added confidence. The more I research the larger my position will likely become if what I find is good, and the larger my position gets the more I research. When you hold a portfolio of 20-30 you just cannot have the time to really understand all the companies and how they work, how things are changing, what the competition are doing, so you are more prone to sell something that has an adverse fall because you don’t have a good idea of what makes the business tick. I keep a few shorter term stocks for trading on momentum. I often don’t have anything like the knowledge and understanding of the company that I should have, these stocks I often do just sell if they fall 5% or so – they are just ignorant trades on momentum, not investments.  Know the difference between a trade and an investment imo. The good thing about having a few trades going is that I do have a brief look at what I’m buying and if the trade does well then there’s the profit and time to take a deeper dive into the company and see if it merits dumping for a profit or perhaps hold on and build a position. This happens a lot more so at market lows. I am not advocating 10-12 stocks in a portfolio is right for everyone. I like it because I try to look for stocks that have the potential to double in 12 months but that also have a reasonably limited downside of say 20-25% in most likely negative scenarios.  On that basis I’m betting on 4/1 on, risk reward ratio approximately, with a potential 100% gain compared to a potential 25% loss on a rough basis.  It will never work out like that but reward seems far more weighted than risk imo. If I did have one go completely boobs up, out of the blue, a la Patiserie Valerie then I’d be 10% down, not nice but recoverable with 9 other potential one-baggers. As I’ve only had about two completely blow up on me in 25 years then the odds are not likely for that to happen.

One thing I’d say that sounds glib but is worth taking seriously is that it’s only money at the end of the day. Now I know in these times money matters, but if you think of it as a game, as winning being a percentage performance rather than increased quids in, then you can again be less emotional imo.  At the end of the day it is only money – if you were diagnosed with something dreadful tomorrow or you lost a child say, then all the money in the world wouldn’t matter to you. If you can think of it as just numbers and a ‘game’ and don’t think that’s the new motor or the holiday I could give back here, then you have a mindset to avoid silly sells to bank profit too soon.  The fear of giving back too much is what prevents the fortitude to hold on and maximise your benefit imo. The mind is an investors enemy at times.

Meanwhile, it seems to me the market here is just watching the US, expecting a pull back and so we sit here each day with mediocre action.  I think the US will break out to new highs before too long and some great results in the UK will reveal just how cheap shares are here and get a more fitting response.  But of course that’s my opinion only, and I’m a perma bull I’m told.

That brings me onto the week gone. I, like others, was hoping for a trading update from CARD this week and it hasn’t shown.  I don’t know if they will issue one, they have issued one most years but it isn’t mandatory. The stock had a bit of a sell off on Thursday, which I presume was itchy feet. No trading update wouldn’t necessarily be a negative, there are reasons like potential corporate action going on which may preclude them from saying something at the moment.  Teleios might be selling again, this is the range they have previously sold at.  The budget raised the living wage by £1 an hour so some investors may have been concerned by that but it never seemed to bother most other retailers.  The US was closed on Thursday so if the mkt was in a weak frame of mind in the morning this may have contributed too.  I suspect a lot of traders jumped into CARD ahead of an expected trading update and with nothing showing they decided to sell out on what was a weak looking day. With 16p Trailing Twelve Months earnings under the belt and cash being generated at an astonishing rate it’s hard to see any bad news that can’t be priced in here imo. I am quite unimpressed not just by the lack of broker forecasts available to private investors but also the obvious under estimates to err on the low side, not just from CARD but others like SHOE through to MKS and others.  SHOE, CARD and MKS have seen earnings double but at no point were these upgrades hardly hinted a year ago. Okay, they might not have expected rises like this but even rises half this amount were not being relayed to investors.  As always tho, nothing is ever 100% certain with any stock so do your research.

AVON, which I mentions last weekend having results out on Tuesday, with the CFO buying £150K just a month ago and the CEO buying £212k of shares then too, then there was little fear of bad news in these results it seemed.  However when the results were out there was a raft of disappointing news re the pension deficit, cash conversion, divi rebase, debt and return on investment capital all worse than last year.  It was easy to see why investors were disappointed but a sceptic would say this was all part of a ‘kitchen sink’ plan to put out all the bad news there was, including the spiders in the wardrobe, to clear the decks for their Capital Day in Feb, where Sclater will have been in the CEO job for one year.  On the positive side, adjusted EPS came in near double where it was forecast a month ago..

Having witnessed this sort of thing before in Rentokil and others I had a good idea of what I was reading and was happy to keep holding.  The stock fell around 50p on Tuesday and was flattish on Weds. On Thursday the stock rallied nearly £1 (12%) after the CEO and CFO bough another £130k and £120k each.  That makes me confident in my theory and I’m looking forward to the Capital Day in Feb. They bought £200k and £85k in May too, all the buying has been between £7 and £8.60.  The Chairman has bought £155k during that time too at a similar price.  That’s £1m worth that the three have bought since Sclater arrived.  There has been no share dilution.  The one thing few have focussed on is the potential bid target, These would be a great fit for one of the big US defence co’s that if they stay this cheap and they are right under the noses of the big defence companies like Northrop Grumman or Lockheed Martin etc.  I would never buy in the hope of a bid, you can wait forever, but it’s another underpin to the risk and possible driver of reward imo.  This looks such an exciting recovery play to me but obviously you do your own research and decide for yourself as you make your own decisions and know your own risk, only you know your own risk/reward and financial situation so take care.. 

Here's a link to my Avon Substack last week

https://cockneyrebel.substack.com/p/avon-avon-protection-final-results

This week I’ve been buying Greencore (GNC).  This is one of those trades which may become a longer term hold if the results are very positive.  These make food for MKS among others and they have a dedicated supply factory in Northampton just for MKS.  They make 795m sandwiches and on the go snacks each year and also do chilled soups and 2000 other products in fact they are the worlds largest pre-packed sandwich maker.  Over the past 18 months they have had a new Chair, CEO and CFO and the Chair and a couple of other directors have been fairly decent buyers over the past year or so.  The chart has broken out and just breached the £1 level recently.  They are doing buy backs and the shares have actually fallen from 655m in 2017 to just 475m today. Obviously I’m already long so I could be singing my own tune, which I probably am.  Might be worth looking out for the results on Tuesday, what with the inflation boost they may have had and the strength in M&S food sales together with a pretty recent board imo.

Right, coming up this week, some I’ll be watching out for:

Tues 28^th Glencore Group (GNC) finals

Tues 28^th Rolls Royce Group (RR.) Capital Markets Day.

28^th   Focusrite (TUNE) finals

28^th  IG Design Group (IGR)    interims

28^th Brickability Group (BRCK)interims

29^th  Cordiant Digital Infrastructure (CORD)   interims

30^th Dr Martens ( DOCS) interims

30th NCC Group (NCC) AGM and trading update

That’s it for this weekend, happy stock hunting and remember these are just my own thoughts and I’m just a private investor – simple folk like, oh ar’ – so don’t trust a word I say, do your own research.

Rebel.