2014 Hotlist Results – Week 50

Week 50 of 2014

There’s a war going on out there and the weapon being deployed is OIL. And what a weapon that is. It’s now a ‘game’ of tolerance or pressure testing. How low does Oil have to go before Putin folds or the Iranians agree to reducing their Nuclear program? How low does oil need to go before US shale producers rollover?

$50 or $40? Barely a month into the OPEC induced crisis, and Russia is already wobbling. Interest rates doubled from 8.5% range to 17% in a matter of days. And that’s with OIL at $56 range.

What’s next? Well, there is a theory that says you don’t need to do more damage to your opponent or opposition when they are already floored on the canvas. Why risk breaking your hand if your previous jabs have already landed. It wouldn’t be a surprise to see OIL edge back to $60 if only to see how Russia and Iran fare then but over more prolonged period such as 2 to 3 months. The balance is a fine one, but with OPEC not due to meet again until July 2015, time is on the Saudi’s and US’s hands.

A virtual portfolio has been set up using the 2013 final trading day close figures as a starting point and £1000 has been invested in each stock. This does not include buying fees or stamp duty and is purely intended to be used as a benchmark or summary for each week. Two newspaper top ten picks for 2014 have been included to help monitor/compare against.

Week 50 stock picks performance review:

With 2 weeks left (or 1 .5 weeks) the Independent looks odds on to secure another win making it 3 on the trot. It’s clinging on to positive ground and should it remain in the blue – that’s pretty impressive performance with the very rocky end to the year. It’s been terribly ugly for commodity stocks. After 3+ years of declines – the heaviest of blows seem to be landing now. Corrections and panic situations like these happen very rarely in the markets. Perhaps once,  twice or three times over a 5 to 20 year period. But as history shows… OIL always bounces back. $30 in 2009 became $130 just a year or two later. It’s painful when it happens but when the turn or rebound comes – it’s a rollercoaster of joy. But it’s not for the faint hearted. Losses today could be profitable positions in 2 or 3 years time. That said – I fear there are many investors out there that have had enough and will not come back to the markets ever again. Does that bother the market? Absolutely not. In fact, after a period of low risk stocks being bloated on QE rounds, it’s fortunate to say the least that sector rotation could see many II’s jumping back into commodities when they are at their very bottom. What a perfectly timed rotation. So whilst it is dark out there at present, the next bullish commodity cycle might not be that far away. Stocks like Afren, Tullow and Xcite etc have all fallen by huge numbers. Tullow was 1600 and is now 380. Afren was 160, now 35p, Xcite was 400p+ now 30p. When the recovery comes, many of these stocks are going to rise 5 fold. Multi-baggers will be aplenty. And some cases of admin and insolvency will be around too as not all will survive this rout. A catalyst is needed as always and that should come via M&A. Consolidation cannot be far away now as it’s more risky/expensive to explore than it is to buy reserves off the shelf via the stock market.

Companies like Xcite, Afren, AMER, Circle Oil, PVR etc should be high on shopping lists. When the first batch of M&A filters through, the rest should correct fast based on sentiment alone.

When will that happen? That’s the magic guessing game. 2015 or 2016? Most think H2 2015. I think the first predatory offer could come as soon as Q1 2015. Ophir have already taken the plunge for their preferred target in Salamander but that deal is yet to close. Terms were agreed quite a few weeks ago before the crisis kicked in with full force. Deals have already collapsed as seen by Dragon walking away from PCI.

The new hotlist picks for 2015 will be issued on Jan 2nd. At current low prices, it’s vital to seek out the stocks that will or should rebound the fastest when the turn comes. Some stocks are more likely to see takeover offers than others. Some are too burdened by debt to progress other assets and may have to part sell licences or farm out.

Have you already identified your top ten picks for 2015? Get prepared, there’s only 2 weeks left.

Current standings / Week 50 Results

1. The Independent’s Top Ten 2014 +1.53% (Weekly loss of 3.72%)
2. The Telegraph’s Top Ten 2014 -6.89% (Weekly loss of 6.33%)
3. TheShareHub’s 2014 B-List -32.54% (Weekly loss of 4.05%)
4. TheShareHub’s 2014 Hotlist -52.83% (Weekly loss of 11.43%)

Click on Portfolio image to enlarge:Independent Week 50Telegraph week 50TSH B-list week 50TSH Hotlist week 50