Weekend Rebel Review Sat September 23

Market warning signs?

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, tho 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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Well it was a very good week here, ‘post St Leger’ but will it last?  September and October are often the worst months to be invested.  November to August can be nasty too :-)

I follow bowls but the reverse of these are rolling tops.  Over the past week or so, clear rolling tops have formed on the S&P and the DAX.

The real problem is you don’t know how long bowls and rolling tops will last. They are good buy or sell triggers but you never get a sell indicator until the bowl or rolling top has clearly reversed.  On the S&P the bowl that has been there for a long time does look to have fallen over here. At the very least the S&P has become a lot less certain.  The best support there at the moment looks like the long term line so I’ll be looking towards that line to trigger a bounce on the S&P.  Meanwhile the UK indexes are all in a pretty sideways to slightly upwards trend as they have been for 6 months as shown on the 250 below.  The 100m the All Share and the Small Cap are similar.  It’s interesting that small caps are so firm here now while the Russell 2000 has been hit hard. There’s a lot of tech in the 2000 tho so that may account for it as UK Small Caps have less tech.  The Russell has lost 7%+ since the start of September while the FTSE Small Cap Index is up 1.5%.

 I’ve seen my portfolio rise around 10% + during that sideways trend, a good deal of that in the past few weeks.  Days when the 250 is off say 0.7% the portfolio has been flat to up, If you are a half decent stock picker you should be beating the indexes. I’ve heard several others say that their portfolios are performing ‘ok’ too and an air of greater confidence. There are a lot of good Small Cap results to hit the wires in the next two months imo.

All in all that looks like UK indexes are perhaps more attractive than the other major indexes, and why shouldn’t they be?  They have under performed for ages and these indexes tend to ‘mean revert’ eventually. Let’s remember that after 2 years of a bear market in small caps we should be near to much better times. The first week into the ‘post St Leger’ trading period has been good for me, it has been a very positive week. CARD, my biggest holding, has rallied strongly in the lead up to Tuesday’s results. Having said H1 and full year will be materially ahead they look hideously cheap imo, but I would say that being it’s my largest holding.

Kier, KIE, which I highlighted last weekend has risen a further 10%. Directors have been buying too right up to 109p on Friday. This really looks a great recovery play imo.  Andrew Davies, Chief Executive, joined 4 years ago when the co was up to the gills in poo. Money short, breaching covenants they were still paying a 17p divi! What were the board thinking? He has got in there, batted it into shape, kicked out the old board,  brought in new CFO, Chair and had a big fundraising which has basically kept the co alive. Margins are now up to 3.9%, well ahead of the promised 3.5% targeted margins.  Now as sales grow, and margins widen the forecasts look easily doable and the fact they are likely to do a 5p divi this year oozes confidence.  They were net cash as a snap shot at the results, average year end net debt has been 232m.  Having done 18.3p eps this year , 20.3p forecast eps this year looks a conservative forecast. The 5p divi is nearly 4 times covered and 4.7%. The business has momentum now. In recovery plays I like to see a new board, a positive sounding statement, director buying and a chart turning up – it’s all here and a very confident divi return to boot as a bonus. I’ve bought a large position as a long term hold.

I have noticed a lot more director buying recently, this is a good sign. KIE, JDW, DFS, TRST, MKS, BPT, SGE, CURY...................lots of them.  A few months ago this wasn’t the case.

Last week I said the inflation numbers would be interesting this week and they were. I was expecting a tick up but less than the tick up forecast. I wasn’t expecting a fall. The core number fell a lot more than expected which really bodes well. I thought we would get a 25 point hike then the BofE would say they were on hold but straight to hold and no change.  This will benefit mortgages immediately as they were pricing in at least one more rise. I remember the Thatcher recession when interest rates topped as inflation topped. I remember Norman Tebbitt under pressure on BBC long after his ‘get on your bike’ comments.  The stock market flew and carried on up for weeks.  The market has priced in higher rates and more persistent inflation so now it has to price in a rosier scenario.  Lot’s of co’s are going to have a little less interest to pay than expected.  Having raised prices they are now going to see their costs fall which they will partly pass on but they will make sure they are rebuilding margins as they do it.  So I expects a lot of better results down the line. I suspect directors do too, hence the director buying.  While oil may be creeping up, UK Natural gas has started to creep up too.  These will clip the fall in inflation to some extent but it will only be for a few months imo, when spring gets here the traders will be getting out quick as spring approaches. Nether the less that’s a bowl on the chart that needs watching.

Shipping prices continue to fall. China may be coming on line but re-shoring is offsetting the shipping somewhat imo

If rate rises have topped the £ may weaken so this will start benefitting exporters.

There’s been a lot of fuss about the government dropping 2030 for 2035.  All this is a dose of reality. Seven years to get us to where they wanted was unrealistic and too costly imo.  There’s a lot of things swinging back in Sunaks favour and once the press start grilling Starmer as hard as Sunak has been then the polls will likely start to move in the Tories favour. People will likely start feeling a bit more cash in their pocket and no matter how people say they will vote at mid term, at the actual election people vote with their wallet. The government are starting to deliver, now they have a year to look competent off the back of that.  I think it was Rab Butler that said ‘a week is a long time in politics’.  

Will the market do a bounce as happened with Thatcher or does the market think all the rate holds signal the Central banks know they have gone too far? That’s where I see us now. I do think of all the markets the UK is cheapest and it would be hard to sell your shares when you know positive results are on their way in October and November.  I’m still near 100% invested. One area I’m very cautious about is the green energy sector, especially Electric Vehicles.  Since the start I have been saying on Twitter that EV’s are not going to take off once the public sees the whites of their eyes.  Last month saw EV sales plunge 11%, they are far more expensive than combustion engines but far less convenient.  The only case for buying them is to reduce carbon which we all want to do, naturally. But when you have to pay so much more for so much less, then you have to be a pretty committed green.  I think we would all be more committed if the planet’s carbon was solely controlled by the UK but no matter how much we save, China is pumping out carbon for fun.  The public for all assumptions so called ‘educated’ people make, are not stupid when it comes to this sort of thing.  HS2 was the idea of ‘Lord’ Adonis, all the Sirs and Right Honourables were in favour of it but it was the everyday ‘bloke’ that was saying it was a waste.  And so we are where we are today.  I’ll avoid shares that are heavily connected to EV’s for now.  I’d take any bid for car dealer shares if I was holding – PDG shareholders just got a ‘get out of jail free’ card dealt to them imo.

News stuff of interest this week:

The number of pubs closing has hit as many this year in 9 months as the whole of last year.  That benefits the LISTED survivors – JDW, CPC  (I hold JDW)

OCDO trading stronger than expected, good news for MKS (I hold) who’s shares hit a 21 month high this week.

XAR, results were unexciting and sales and profits lower than I would have hoped. They really need to start delivering profits and cash flow by the year end results or they are going to look like the water based inks and high viscosity isn’t the big deal they have claimed. I have just a token holding to keep them high on my watchlist.

WIN – Wincanton, great news on their pension.  Higher interest rates mean a lot of these pensions are no longer in deficit and becoming easier to off load to others to take the responsibility and risk on. There has been a number of pension deals like this so expect more. The shares rocketed 15%. I don’t hold.

MOON – Moonpigtrading update, stagnant basically.  No ‘materially ahead’ like CARD  keep posting.  Moonpig are valued at least 3 times the lowly valuation of Cardfactory who have results on Tues so watch out for that (great timing means I have a hospital appointment at 10am Tues, just as the CARD presentation starts so I’ll have to catch the recording as soon as it’s on the website sadly)

This week I’ll be watching out for the following:

26^th DBOX        interims -

26^th CARD        interims

26^th ASC          trading update

26^th YU.           interims

27th NCC        Finals

27^th AVG          Finals

27^th SAGA        interims

28^th AVAP        Finals

28^th CDGP        interims

28^th BOO         interims

29^th GDWN      AGM

29^th CCL           Q3 update

Monday night I’ll be doing Mello Monday again in the bash.  A lack of humility means I will mention that I  chose CARD two weeks ago which has done well since. :-)

Have a watch – I think my choice this week has one-baggability again over a year or less.

That’s it, the sun is out, time to enjoy the weekend – have a good one.

Rebel