Weekend Rebel Review Sat November 4th, 2023

The Market - Fireworks for November?

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 a very happy weekend review this weekend  Well the market clearly was waiting to see October out before rallying as I suspected and staying fully invested has paid off, I’m pleased to say on this occasion I seem to have got that right – so far at least, being a ‘perma-bull’ is paying off. The FTSE250 has rallied 7% in a week and soared right up to the fist resistance level on the chart.

As yet the chart hasn’t broken out so it would be a brave investor that bought in heavily here. That’s still an intact roll over on the FTSE250 and most technical bods wouldn’t see this as anything other than a technical rally, which it may be – none of us know – we all have to make up our own mind.  I’d say the plummet in the VIX into the 15 level and Fear/Greed soaring back up to mid way Fear gives me the confidence to hang in there fully invested.

VIX down to 15.3

FEAR/GREED up to 41

I’ve gone into November fully invested and this week my portfolio is up  8.5%.  It has done better than it might have due to CARD, MKS, RR., and AVON making up 70% of my portfolio – not something I  would advocate.  The FTSE 250 is up 7% this week. I currently have about another 8-9 stocks that form the other 30%. One big mistake investors make is to dash for cash right near the bottom of the market, I was guilty when newer to this game. I had a bit of a discussion about the very subject this week on Twitter.  Consider this – if you went all into fixed interest or gilts at the highest point on the FTSE250 this year, you would have sold at 20500 then by the start of this week you were 18% to the good for doing that. Unfortunately 99% or more would never have sold right out at the top and bought back last Friday before this week’s rally.  Realistically, 19500 would have been a more likely level to have sold out at as the 250 spent about 6 months trying to break that level and failed so let’s say you timed it that well and sold out then, you would have been 14% to the good last Friday.   Now let’s be generous and say 99% would never have bought back in 100% last Friday, let’s say the best you would have done is buy back in after seeing the rally on Thursday and you missed the 6% rally in the first 4 days this week – you’ve saved yourself 8% by trading out at the top and back in if you timed it that well.  Well done  - except you haven’t saved 8%.  Spread and dealing charges likely clip 1-2% off of that.  The second thing is you will never go from being 100% in cash or fixed interest and feeling lovely and safe to sticking all your cash back in the market in one day, you will likely buy back in gradually which means you’ll miss more of the rally that you would not have missed hanging in there. The longer you wait to buy back in, the more you will worry you are buying in on a short term top, just as the market falls again.  Put simply, as nice as it feels to sell out and relax, when the  FOMO (Fear Of Missing Out) kicks in, you will likely regret selling in my opinion – I’ve been there.

So basically yes, if you time things very well, and sold out 100% at a very good point and bought back in100%, 5-6% off the bottom, with all your cash in one go then you may have saved yourself 5% or so.  Chances are tho you never would, and if you measure the cost of trading out and back in you nearly always pay a price. What I would add tho is that if markets like this stop you sleeping then going to cash is probably the right thing to do.  Sleeping well and keeping your stress low is important and paying 10% or so to avoid all that stress is probably right for you. The same decision is never right for everyone and health is a priority, health is real wealth. If you sold out more than a year ago and dashed to cash then, you may have done better I guess, but you will have had this very dilemma last October too, and either bought back in well after the 25% rally was done or missed most of those gains. It just isn’t easy selling out and getting back in, especially with 100% of your fund.

When the market does clearly bottom there’s a heck of a lot of cash to rush into equities from funds and private investors who have driven up gilts so sharply.  The 5% being earned in gilts in a year has been earned in a couple of days in equities.  Those in gilts and fixed interest haven’t even had time to go through the sell process yet, let alone buy into the market. What happens now is those wanting to buy back into equities are looking at a 7% spike in a week -  who has the pebbles to pile in now and risk buying in on a short term high? For many it will be like being a rabbit caught in car headlights.  It really isn’t easy, I’ve been there.  The best and safest way to get back in the market is gently nibble in in my opinion.  I cannot tell anyone what to do, everyone makes their own decision but it won’t be easy. One thing I do know is that in 2009 when the market bottomed after 21 months of the financial crisis then I made up all those 21 month losses in 3 months by buying in pretty swift and heavily where I was 100% cash I was more certain we had bottomed then tho.. Also, over 1 year, the FTSE250 is now flat.  I have to say it felt very tempting to rush to cash over the past year but the thought of missing last week’s bounce prevented me.

What the VIX does now is anyone’s guess but I’d expect it to move in down with good inflation and interest rate news, and up with the opposite.  After bounces like this the glass often becomes ‘half full’ for investors until bad news changes the mindset. Watching the VIX helps you see what sentiment is like. It’s impossible to know where the market sentiment will go, so to an extent I find it better to stay invested but perhaps trim a bit as the VIX starts to firm and buy back as the VIX starts to fall, that helpsme  prevent ‘Geeze, I’m over invested’ reactions when markets take the odd sharp shift down.

Fear/Greed keeps oscillating back and fro from mid fear to slightly into extreme fear and back.  I think the markets are back on the up but there will be moments of pull backs. Days that start down then turn up are good bull indicators imo.

Lots of moves here are from traders, in and out and the same old stocks start to move every bottom.  I have stuck with my main positions but a few small holdings in a few things that I’ll add to if the news is good or sell if it’s poor.  I’m maintaining roughly a dozen shares to hold and a small few to trade. The only stocks that will make the cut here for me are stocks that could double in a year. I’m aiming for the Sun from this big low and if I miss I may hit the moon instead, which would be fine.

It’s amazing how quick stock prices compound when you catch the lows. Look at something like MKS a year ago at the low it was just under £1. If the shares move 7p it was exciting, 7%.  Now at 223p a 7p move is less than half the percentage move. Earn 7% on the shares today and you get15.6p eps on a stock you bought for less than £1 a year ago. That sort of compounding over years really boosts your pot. Personally I have learned that when I see a compelling recovery stock that I feel is recovering then I need to buy early and buy big. Other investors will have their own strategy, don’t follow what I do, I’m just saying what I do as openness.

Buying big stakes and fewer positions has it’s risks but normally I wouldn’t go over 15% in one position (I used to stay under 5% years ago).  I ask myself what is the worse that could happen?  If a 15% position went wrong, the likelihood with the earnings and perhaps the divi or cash and assets in the stocks I buy, the worst would be a 50% hit for one stock. Say it was a big 15% position, I would be down 7.5%. That would be painful, but it wouldn’t destroy me. I’ve made 9% this week so it would clearly be recoverable. It’s worth assessing your stocks and likely worst case scenario and likelihood.

The S&P is up strongly too and approaching resistance, there will likely be a bit of a pull back at that level. I don’t expect it will be that deep a pull back but be aware of it imo

If the S&P breaks that line it would be uber bullish. The bounce in the UK has actually been stronger than the US thus far – that is encouraging.

There are some fantastic valuations in the UK market on all sorts of metrics like PE’s, PEGS, Free Cashflow or NAV’s, the likes of which I never saw even in the Financial Crisis.  Investors really have run for the doors and left lots of value on the card table.  There’s a lot of trailing 12 month PE’s below 5 but many of these companies are the sort that have always had low PE’s for one reason or another.

One I looked at this week was WRKS after it was mentioned to me on Twitter. I knew it was cheap but decided to take a closer look again.  The shares are 41p, the market cap is £24.5m. It has sales of £280m, up 5.8%. It did £10.1m pbt and has £10.2m net cash and is expected to do over 7p eps this year. So a PE of 6 and 40% of the market cap in net cash and a 4% yield or more.  Activist investors Kelso have recently taken a 5% stake in the co.  It seems hard to see downside on this valuation so decided to buy some today to be involved ahead of the results. This is a very illiquid and the shares can move all over the place on news so do your research.

On Wednesday MKS have their interim results out.  This is a business undergoing huge change.  The food side is running on all cylinders and a recent ‘discussion’ with Ocado means they won’t be getting hit for £30m as a share of the loss with Ocado this year either.  MKS are creating huge out of town stores and closing the drab old high street stores.  These new stores generate” 200% greater sales” I  saw claimed in the press but it never said whether that was per sq foot or per customer – either way that’s a lot.

The store trade on a PE of of 11.8 falling to 10.6 and are set to reinstate the divi this year from 4.9p to 6.9p next year.  What is interesting is after just 19 weeks of H1 the co said “There remain considerable uncertainties about the economic outlook, and there is a risk that the consumer market will tighten as the year progresses. Nevertheless, we now expect the outcome for the year to show profit growth on 2022-23, and the interim results to show a significant improvement against previous expectations”.   Saying that about the full year, just 19 weeks into H1, suggested they were very confident and I expect the market could get a positive surprise.  M&S used to be in every pension when I was younger – now there are just 3 large holders with notifiable holdings. If they beat then the earnings forecasts will be raised and there will be PE expansion too imo, a double wammy. These are a big holding of mine so I would say this but be sure to watch out for their results on Wednesday - these won’t be just any results, these will be M&S ‘Best Ever’ bullishness results imo.

There  are some hideously cheap stocks for stock pickers to get here imo. One I own that I’ve mentioned before is SHOE which started ticking up on Friday. They still have a lot more stores to convert.  They have the potential to do 37p+ eps over the next year even tho the forecasts have been set at a low bar yet again.  That will be helped by the co having a lot less shares this year and likely to do more buy backs.  They can pay 10p+ divi every year going forward and keep eating their own shares which will make them so cheap the market will just have to buy them imo.  This year ended they will do earnings 30% higher than ever since floating, they will likely pay a record divi yet they are 40p below their past record high. Think forward imo – They will announce 27p+ eps in January, they will pay a 3p+ final divi and likely yet another 8p special from the £16m net cash they have.  Despite brokers forecasting  24.7p eps for next year, I expect for the third year in a row they will wallop forecasts by a country mile for the third year running simply because brokers are setting forecasts way too low, so much so they are pointless taking notice of imo. If they do the 35p+ eps going fwd as I suspect the PE is around 6 – half where they have traded historically. They will pay a 3%+ divi plus the likelihood of a large special divi too. There will also be 46.2m shares rather than 50m after the buy backs.  While the share price is this hideously low I expect they will keep doing buy backs so low ball forecasts suits them.  They bought back 7.5% of the co’s shares this year, that mean 8% higher dilute eps next year if net profit was just flat.  If you buy back 50% of your co shares your dilute eps rises 100%. Absolutely crazy cheap but as the bears grow horns I’m sure these will re-rate significantly imo.  This is just one stock of many, there are loads out there I’m watching (tho I have no cash left) and I’m sure many more will reveal themselves and re-rate as cash rushes into the market. SHOE has the scope to double imo, while being heavily net cash and cash generative..

Other companies reporting next week are FOUR, KITW, DEC, HTG and LUCE who I will be keen to read.  CARD are already past their Q3 end now so a trading update could be any time now, it was mid November last year but they are not set in stone.  The only two of those I hold iS CARD and a small position in LUCE.

I hope this is the start of a happier time investing for everyone and that none of the above sounds like ‘I told you so’ - nobody likes a smart arse!  It’s just the way I invest and what I’ve learned from 25 years doing this for a living and the embedded shrapnel that I have in my body to prove it. Passing on experience doesn’t cost a penny but can save others a fortune I always think.

Stay well, play safe, live big and love lots. Remember that market bottoms are when you have the best chance to make life changing investments but do your research!

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