June 23rd 2016 – Ring any bells? For those cheering for a Brexit the date is etched in stone and of equivalent importance to that of 1966 to all English Football followers. The latter will know all too well just how painful it feels to achieve a great victory only then to spend the next decade or five waiting for the next victory to come along. If someone had said in 1966 that it would be another 52years+ before England would look like standing another chance of winning the World cup, they would have been laughed at. Almost 2 years on after Brexit and you can almost feel the frustrations beginning to boil. After the initial stunned responses from all parties involved, the EU and UK locked horns in a battle over terms and details. It’s complicated. Don’t get me wrong. This is no easy feat. But lets get real here. The Conservative government has had almost 2 years to arrive at a customs / trade agreement and as yet, all appear clueless. In a world dominated by digital media and virtual ‘borders’ one would think a solution would be as easy as a few clicks of a mouse. A decent facial recognition system that can scan through a few balaclavas would also not go a miss. TheShareHub mentioned a few months ago that it felt like all involved were dragging their feet… delaying the inevitable in the hope that public sentiment may change in favour of remaining or better described as a ‘Soft Brexit’. It looks like a Brexit, waddles like a Brexit, quacks like a Brexit… but is actually a few EU regs away from being a ‘REMAIN’. At present, the writing looks like it’s on the wall… and any timeframe agreed 1 year ago looks like slipping into 2020. There are even some experts out there citing 2026 as being a potential clear break point. That’s only another 2 world cups away… so you never know, England’s football team may well hold the Golden globe above their heads before Brexit finally happens. The chances of either happening before March 2019 looks highly unlikely. In the meantime, the UK economy slows to almost zero. The all important UK property market dropped by 3% in April against a -0.3% expectation. It was a shocker and carefully played down by all media sponsored outlets. Blame it on the beast from the east? Well, considering March, April and May are supposed to be the strongest periods for the UK housing market, it doesn’t bode well for the quieter months come July, Aug and Sept. Added to this, the woeful weather also took the blame for a 3%+ drop in retail sales. UK commuters will know the danger of a few leaves on the tracks, but who would have thought a few snow flakes would have turned Mr Carney’s BoE rate cut plans to slush? Whilst the weather has not helped, the real ‘beast from the east’ is indeed the EU. The dangers of protracted Brexit discussions are now being broadly felt across the UK and the EU. Uncertainty is a killer of sentiment. Unless some clarity begins to appear, it’s just going to get worse and that ultimately means more QE and a return to rate cuts rather than rate increases. The recent ‘kicking the hornets nest’ by the US in the MENA region has brought with it more uncertainty across the globe but also higher commodity prices which in turn cause higher inflation concerns. OPEC have been kind. Between OPEC and Russia, they have carefully rebalanced the world’s supply against demand over a 3 year period giving countries/governments across the globe an opportunity to grow out of a recession. But lets not forget where PoO was and where it is today. PoO (Brent) was trading at $105pb just 4 years ago. Today, Brent is trading close to $79pb. Even at $90pb, it’s still a decent 15% shy from 2014 levels and that’s against growing global demand. The worst may be yet to come. Whilst US shale is able to scale up swiftly, it is also fast to decline. It might just keep coming or it could hit a patch whereby replenishing supply takes a little longer. The certainty of delayed projects and limited supplies is more apparent across NON OPEC supplies. The North Sea as well as many other areas across the globe have seen development projects shelved. It could take years before significant new production streams hit the market. All points to higher Crude/Brent prices in 2018 and this will either be compounded by Iranian sanctions or alleviated by higher Saudi/Russian production. One thing is sure… PoO is being nicely polished ahead of the Saudi Aramco IPO. After Trump’s recent helpful actions, it would not surprise me one bit to see the Saudi’s appoint Goldman Sachs/BoA and co as the leading book runners for the world’s largest IPO. The commissions alone in handling a deal like this dwarf any normal market action in any given year. I suspect the LSE will benefit too but assuming the above, it is likely to be peanuts compared to the US companies. Plenty of ‘back scratching’ going on out there at present and to his credit, Mr Trump is making UK and EU look a bit like naive kids at their first day at school. If the UK and EU are going to get anywhere fast over the next decade, it will be by working with each other… the sooner the better.
Week 19 Review:
Strong recoveries continue across the newspaper picks as the bluechips get hauled up with the algo bots chasing the FTSE higher off the back of strong commodities. The latter is due a breather but assuming there is a continued switch out of retail sectors/banking etc, it’s likely to see some solid support over the next few months as commodities keep the FTSE 100 unseasonably high. Sell in May? In 2018… No way! TheShareHub top ten picks lead the way although frustratingly held back by some slow progress (in share price terms) from HUM, SOLG, and CERP. All are lagging despite great updates, so one would assume these should outperform or consolidate well if or when a commodity ‘breather’ comes along. Unfortunately for Serica, having assets co-owned by Iran is not ideal but looks like worst case scenario is already priced in. I would expect CERP, SOLG and HUM to be the biggest movers over the next quarter. PetroMatad (MATD) as part of the 2018 ‘heads up’ calls should also spring into life as the long awaited summer blockbuster exploration drill plan gets underway. Roughly 6 weeks left to get tickets booked – cheap seats still going for that show. Usual risks apply – see the risk warnings in sidebar.
Kaz Minerals is no minnow. This is not a flighty AIM story. This is a story of stock that simply got oversold at a time when the market thought commodities were dead and buried. Of course, Kaz Minerals is not the only FTSE stock to recover strongly over the last 2 years. As mentioned before huge sector bellwethers like Anglo American and Glencore have all recovered strongly after the rout of early 2016. Just what was the market thinking? How can you value Kaz Minerals at £450m and 2 years later value the company at £4.5bln? Well the answer is simple. The market (now regularly called a ‘Casino’ is stooopid. It’s dumb at the best of times. Sophisticated it is not. Algo bot driven, spread driven, hedge fund driven… you name it… the market has become so divorced from reality in ‘value’ terms that idiotic pricing gaps occur on a daily basis. And guess what…? Who cares about value? The market today is simply about generating enough ‘opportunties’ to make money. The more ups and downs the better. It’s recovery stories like Kaz Minerals that all investors should learn a lesson from. The market can be irrational. The market can be very wrong. The market is the market. Investing in stocks at times of panic and fear is a volatile time – it’s a risky business and as such discounts to share prices should be expected. Sometimes companies go under. Sometimes they don’t. But most of the time, companies that are in trouble or looking weak, simply become weaker in share price terms based on shorting activity, debt holders arbitrage trades and of course the vultures… you know the types. Instead of helping good companies recovery from weakness, the market seeks to grind them into dust hoping to pick up the pieces for pennies. It’s an ugly attitude and reveals the true city/market mentality. Make money at all costs. Fortunately for Kaz Minerals and a few others, they escaped the ‘manufactured’ weakness in share prices and have since recovered strongly. If you look back, you won’t see too many broker recommendations on these stocks. Quite the opposite… an eerie silence. Tut tut!. As long term ShareHub followers will know, The ShareHub picks of 2016 returned a whopping 123% growth – final Results shown below.
Look a little closer and you’ll see Kaz Minerals ended 2016 at 357p delivering a solid 2.5 x multibagger after being tipped by TheShareHub at 102.25p. Today, Kaz Minerals touched 1035p and goes into the hall of fame for a second time with a magical 10 x multibagger status tag. Well done Kaz Minerals.
Of course, there are instances when successful stories end as horror stories. Look no further than Xcite Energy. Included in the 2016 picks and contributed a nasty 10% slice off the overall folio performance. And 100% down the drain on a single lined stock basis. Looking at the market today and the current Oil Price on Brent of circa $77pb, there is no doubt that Xcite Energy would be trading at multiple millions with booked reserves of circa 250mmboe+. Unlike Kaz Minerals and others, Xcite Energy failed to secure the funding they needed. A combination of poor management decisions and a market that was bearing its teeth with glee ended what should have been a very prosperous North Sea project generating many much needed jobs. Of course, hindsight is a wonderful thing, but the point that needs to be noted is that had Kaz Minerals and Glencore needed help/support, the chances are they would have been highly dilutive. That’s not the market ‘helping’ companies. It’s a market that seeks to suck the very last drop of blood. Wouldn’t it be refreshing if the market actually stepped in from time to time to ‘assist’ companies in distress on a fair value basis? Afterall, when the boot was on the other foot it was the UK tax payer that was asked to step in and save the bankers and spivs blushes. Today, bonuses throughout the city are flowing again like 2008/2009 never happened. Perhaps if the market took a different tactic going forwards it might help support ‘value’ resource based companies rather than drill them into the ground?
So next time you get fed up with the market and feel valuations are a joke… just remember the Kaz Mineral story. The market gets it wrong…. sometimes very wrong and that’s where you’ll often find the greatest opportunities of all… albeit with higher risks attached. Value often wins through in the end.
The market is full of multibaggers out there – you just have to find them.
Oh, yes we’re in the money, you bet we’re in the money,
We’ve got a lot of what it takes to get along!
Let’s go we’re in the money, Look up the skies are sunny…
Sunny indeed. What a belter of a bank holiday for blighty. The chances are it’s come too late for Carney and BoE’s rate plans. The beast of the east has apparently cost the UK economy billions. Of course there is more to the recent Retailers demise than just a bit of poor weather. Amazon and other digital providers are the main source of concern for bricks and mortar retailing – that and a worringly weak consumer back drop. It’s not going to get any easier for them. The future is ‘online’. But changes in dynamics brings with it a change in thinking. You’ve got to out-think your competitors if you can’t beat them on margins. Which is precisely why the Sainsbury & Asda merger deal makes so much sense. It’s always nice when the plethora of hedge funds and wide-boy boiler rooms shorting Sainsbury stock get a rocket up the derriere. You’re not in the money… not in the money… your losses are a lesson to ooo ooo thee.
Week 18 was a good’un’ for Hummingbird Resources. You wouldn’t know it looking at the share price. The stock has barely moved from levels last seen in August 2017 when PoG was $1250oz and their Yanfolila mine was just a few mounds of scorched red Mali dirt. Fast forward 9 months, and the red dirt has been transformed into a fully operational and ‘commercial’ mine knocking out roughly 10koz per month. Add to this the surge in PoG prices now in a range of $1300oz to $1360oz and one has to scratch the head as to why HUM is still priced at Aug 2017 levels. One reason for the sluggish performance rests not with the business but with a large investor called Pageant Holdings who have (for there own reasons) been reducing holdings of circa 5%+ down to 2.9% and lower. One thing is sure, you’ll know when they are done selling as the share price will likely catch up with the business performance pretty fast. It’s certainly a potential ‘opportunity’ for newbie investors looking for exposure to Gold prices via a fully commercial early producing mine. As always, risks remain so read the general investment risk warnings in the sidebar.
Elsewhere across the TheShareHub top picks for 2018, CERP.L is showing signs of awakening. Looking across at their peers in Trinidad and Tobago, TRIN.L have performed terrifically well bouncing almost 100% over the last few months. Any positive update from CERP on production or further acquisitions could see the stock play ‘catch up’ pretty fast. At 5.5p range, the stock is trading well below Oct 2017 highs of circa 7.5p. It might not be too long before the stock heads higher. Schroders continue to build their stake in the company with recent Holdings RNS’s showing a stake of circa 14.2%. TheShareHub highlighted back in Jan 2018 that Schroders may well be targeting a nice round number at 15% or possibly 20%. For the moment, it’s a process of shares leaving the hands of the impatient to the patient. CERP may not appeal to the usual daytrader types due to low liquidity, but just wait for a deep exploration well to be announced in 2018 or 2019 and the herd will be fighting to get through a very narrow door. Schroders and co already have their seats booked.
Week 18 positions below: Further recoveries from the newspaper picks as they head toward breakeven for the year (excluding any divi’s). TheShareHub Hotlist is the only one ‘in the money’ and is just shy of hitting 2018 highs last seen some 5 months ago. It’s been seasaw stuff with the DOW losing some 2500pts over the same period, so certainly a strong sign of out performance by commodities of late. All eyes on US/Iran sanction decisions set for before or on Thursday May 10th. Could be same day as BoE’s now fast becoming non-event rate decision. PoO will likely sell off whatever the scenario this week as the casino market likes to shake it up albeit temporarily. Bigger woes lie ahead for Oil supplies beyond Iran as non opec output continues to fall against rising demand. When the rebalance arrives, the market is likely to overshoot as it’s far from sophisticated these days and a little heavy handed. $85pb is certainly possible over the next few months. Bodes well (should it happen) for ShareHub picks TLW, PFC, SQZ, CERP, AMER and PMO.
What a week. Rocket man turns into Trump’s best mate. Sainsburys to merge with Asda. TSB woes, Oil Bull Andurand warns of $300pb and finally… leading British Cabinet politician misleads and tells a lie. Take your pick but one of the above is not headline news nor a shock. Rocket man and Trump could easily feature in the next Austin Powers movie. Both share the shock and awe approach to pre-negotiations. Plenty of bluster and noise followed by a slow retreat (off camera). Progress is progress, just a shame these days that it’s done through ‘threatening behaviour’ rather than traditional diplomatic discussions. Supermarket mergers rarely happen with the view to delivering consumer savings. It’s all about store closures, margins and squeezing the farmers harder and harder. Competing with the Germans on food production/sales is tantamount to taking them on in a penalty shootout. Aldi and Lidl will not be concerned about UK mergers but Morrisons and Tesco might. These two should consider a nice weekend spa break together soon. TSB ‘Trustee Savings Bank’ (although other acronyms spring to mind) is perhaps the biggest worry of all. UK Banks today act like tortoises on roller skates. All the technology is out there and has been taken up by the rest of the world. But good old blighty seems stuck in the pin stripe and top hat days. More and more customers are finding online accounts breached or have become victims of fraudulent activity. The UK banking industry has to work harder to protect consumers money but it also has to deliver a seamless solution that does not prevent customers losing access to their ‘money’. You can of course do your bit and pick strong passwords. Look closely at all email links before clicking on them, and do not throw your personal details out in the bins for criminals to pick through or display them free on social media for all to read. Moving on, Oil at $300pb? Don’t be ridiculous! But as headlines go… in true Trumpism, it gets your attention. Which is precisely what is needed from a market perspective. TheShareHub has been highlighting the risks of watching US supplies too closely while not looking at the rest of the world. Lack of new fields/developments will bite hard especially if the US, Saudi’s and Russian’s cannot meet the increasing oil demand further down the line. The market has been complacent across commodities for too long. It is only recently that equities have begun to catch up with higher prices. As per last weeks update, many bellwethers are still 50% to 100% off 2010 prices (last bullish period). Certainly bodes well for TheShareHub top ten for 2018. Finally, a special mention must go to the true star of Austin Powers, that’s not Trump. It’s not Rocket man but it’s the one and only mini me…Verne Troyer. RIP.
Week 17 delivered some further gains for the newspaper picks which have staged a decent recovery from being 10% down a month or two ago. TheShareHub top ten picks took a breather and consolidated after strong gains. Stock picks such as CERP, HUM, SOLG and PMO have been slow to join the equities/commodity recovery. All should do well in the coming weeks/months. Heads up calls in MATD and PDL are mixed with the former consolidating nicely prior to the biggest exploration campaign on AIM. It should be very exciting times for MATD holders over the next 6 months+. It might not be too long before MATD breaks out into higher levels circa 16p to 21p range. PDL has struggled and needs to get the confiscated parcel of diamonds issue resolved before moving on with any pace. As with all stocks, read the risk caveats in the side bar.
Oil back at $75pb. Who would have thought it? Well, reading back across the headlines on main media channels, the answer is …not many. Apparent market guru’s and a plethora of highly paid oil analysts were citing $50’s at best for the black stuff. Some have changed their tune of late, if only to save some red faces. But lets not get hung up on good calls or bad calls. The market has become the kind of animal that feeds on daily news and forgets yesterday’s news like it never happened. It’s an ever changing market with investors ‘trading’ more than traditionally longer term holds. The phrase a ‘long term investor is simply a short term trader with a trade that has gone wrong’ seems to be cropping up more and more these days. This is not quiet true and a tad blunt if anything. If we take a look at some long term recovery trades within the commodity sector, it’s easy to see that buying low and holding out can be a less stressful and calm pathway to greater profits. No fretting of selling tops and looking for lower entry points or fears of being sidelined and missing the boat. Of course each investor has their own risk appetite and strategy. Not all are the same. Some stocks demand a little more attention than others. Across the commodities, Glencore, Anglo American and Kaz Minerals are prime examples of great long term recovery stocks. In Jan 2016, Glencore was testing 70p a share. Just over 2 years later and the stock is testing 400p. Around the same time, Anglo American was testing 220p a share. Today, it’s pushing the 1800p level. Kaz minerals performance outstrips these two large bellwethers with a run from 80p lows to test 950p recently. These are not flighty AIM stocks. This is FTSE elite stuff and priced in the billions. Now, holding stock for 2 years is hardly long term investing. But in today’s market and with the current short term sentiment, it’s a challenge. The media channels and news feeds are littered with stories designed to test your nerves. The market or casino as it’s now best known lives off ‘activity’. More trades equals more fees. Volatility generates greater volumes. The market wants you to trade. It doesn’t want you to sit tight. Of course, hindsight is a great tool for being able to look back and measure with a clear view. It’s not always that easy when you find yourself in the moment sitting on an already handsome 1 or 2 bagger. So where are we today in the commodity recovery cycle? That’s the big question. Taking the 3 examples provided above, Glencore’s pre 2012 (beginning of commodity bubble/collapse) share price was circa 525p. Anglo American was 3000p and Kaz was trading at 1600p. Of course these prices are just reference points and do not factor in divi payments or dilution along the way but broadly speaking, they are not far off presenting the potential future path for any continued recovery. In summary, there is potentially 50% upside in all of these stocks. It’s not going to be as easy to break higher to those levels with a major index correction across bluechips as trackers/etfs etc etc tend to peg stocks back regardless of individual business performances. But as sectors rotate and risk profiles change, the QE bloated bluechips are often dumped and the money moves to undervalued or slightly higher risk stocks which invariably includes the 3 bellwethers above. Does this warrant the headline ‘bull market’ for commodities? Possibly. But some will point to recovery to-date and suggest we are already in that bullish phase. TheShareHub believes there is more to come, possibly a further 2 years of strong commodity prices. Tail winds such as minor recessions await on the horizon as monetry policy of late seems more intent on getting interest rates up simply to be able to lower them as an ‘effective tool’ further down the line. Near term, the focus is on the black stuff with the Saudi’s very keen on maximising their upcoming Aramco IPO. It’s unclear when that IPO will take place but for the time being, PoO is likely to be heading higher. The question is… what happens to PoO once the Saudi’s have got the deal they want? Will they continue to support prices? Much depends on the price level, the Industry as a whole and US shale in general. For now, the coast looks fairly clear for the next 6 to 12 months but that’s just an opinion… so don’t bank on it!
Week 16 was another decent week across all top pick lists. The newspaper picks are slowly making their way back to breakeven for the year while the commodity focused ShareHub top ten are looking strong with plenty of upside left in the tank. Stocks such as CERP, HUM, SOLG and PMO should all kick in sooner rather than later as they have underperformed other peers and looks cheap in comparison.
Q2 is now in full swing and the changes from Q1 are notable. A number of commodity stocks are back in demand after a cool off period that followed the rather over excitable start to the year. As an example, Tullow kicked off the year at 205p, then popping higher to 235p before the market cool down and Dow wobbles. Tullow (a bellwether for mid tier oil players) is currently trading around the 215p to 220p level after dipping as low as 170p just 8 weeks ago. That’s a decent 30% swing from lows against PoO which has seen a recovery of circa 10% to 15% from 2018 lows. A similar 30% recovery from lows can be seen on SOLG moving from 20.5p lows to test 27p today. The bulk of these corrective moves have occured in Q2 suggesting that a fair amount of new or sidelined money has been making its way back into the commodity sector whether through tax planning/ISA trading or simply because of more attractive entry points. As mentioned at the start of the year, TheShareHub believes 2018 could be the year that sees a switch away from overbloated QE fuelled bluechips and into cheaper and more attractive risk plays within the commodity sector. Stand outs are Gold focused stocks as these present an extra layer (potentally) to benefit from market volatility and global risks such as Trade wars as well as physical wars. The latter looks unlikely but there is no doubt about it, with Trump and Putin at the helms, anything is possible… even the unthinkable. With Gold at circa $1340oz, the market is yet again showing signs of complacency. This go-to metal at times of uncertainty really should be trading in the $1400’s minimum. A similar level of ignorance applies to PoO. At $71pb (brent) the market is not factoring in any shortage in supply. That’s dangerous especially with Iranian / US sanction talks due to kick off within the next 6 to 8 weeks. The market must look beyond the usual supply and demand metrics and instead start to concentrate on where the new supplies or ‘growth’ is going to come from. Investment in new developments has been poor over the last 3 to 4 years and as such many fields are heading for decline (inc US shale) with no obvious indications of new developments replacing them. In a situation like this, you tend to see sharp volatility in prices as the market seesaws around trying to find a new balance. Over the last 6 months or so, we haven’t had much volatility in PoO which suggests in a market that does not do ‘dull’, we might be in for a trip into the $80’s pretty soon.
Overall, week 15 was decent for all stock picks. The newspaper picks have recovered around 5% although are still a decent 10% swing away from TheShareHub commodity focused top ten. The latter are performing well across all stocks with exception to AMER.L. Good updates from CERP and SOLG appear to have gone unnoticed which suggests that when the market wakes a bit, these stocks will outperform as they both have some catching up to do. Great results from Serica saw the stock bounce back from 64p lows to test early 80’s (another magical 30% recovery). Hummingbird Resources is trading relatively flat for the year which is a surprise considering they are weeks away from full commercial production. Early mines are notorious for stuttering at start up as it takes time to get bedded in. But thus far, HUM.L have shown no signs of problems and look firmly on track. If or when the Gold sales start flooding in, it would not be a surprise if the stock rerated by the recent trendy figure of 30% or so to test 41/42p. The company is also set to kick off some new exploration drilling in the surrounding area of the Yanfolila mine in the next couple of weeks or so which should add further catalysts for the share price heading into May/June/July.
Week 15 – Current positions below: