2017 was a terrific year for the major indices with most closing out at new all time highs. If there was a glass ceiling, I would say its been smashed. So what’s in store for 2018? Much of the same or a significant pull back? That’s the question on every investors lips. There are pro’s and con’s. The pro’s are that US growth is set to continue (apparently) aided by consumer spending driven from greater earnings via Trump’s US tax cuts. An alternative view is that the cash placed into richer individuals pockets will not actually make its way back into the economy but instead head straight into the stock market. The net result is the rich get richer, the markets go higher and the US economy puts in a moderate to unremarkable growth year. But that assumes upward momentum of course and with markets at all time highs, it’s far from straight forward. What happens if investors think markets are toppy and begin taking cash out rather than putting cash in? Where does the cash go? Crypto currencies? Or good old safe havens like metals such as GOLD. The last few weeks of the year have already seen the US dollar weaken which in turn bolsters Gold prices as well as other commodities. Trump has always wanted a weaker dollar to ensure US companies continue to attract business and investment. The truth is, the dollar needs to go quite a bit lower if US companies are to out compete the Chinese. This bodes well for commodities and assuming growth via China continues to deliver the necessary demand – 2018 should be another great year for the commodity sector.
So lets look at the potential money flows for 2018:
- Cryptocurrencies – In today’s markets anything is possible. That’s been proven by the huge rises in Bitcoin and other cryptocurrencies. I have no doubts that cryptocurrencies will be strong in the future but at present the volatility and toppy nature of Bitcoin should be enough to have investors avoiding like the plague. In late 2000, it was tech, and that bubble burst pretty quickly. After a decade or more, tech is finally delivering on some of the earlier promise. I believe Bitcoin will do much of the same.
- US stock markets – DOW and S&P are at all time highs. Investors may begin to become more cautious with investments in these indices especially if signs of weaker US growth kick in early 2018. No one likes buying in at the top and every bull run has its day. Whilst there is no major catalyst for a sell off, it’s likely to be more volatile next year with some pullback on the DOW effecting markets cross the globe. It only takes a few bearish headlines and the DOW can be back at sub 20k in weeks. It wasn’t that long ago the major index looked fairly priced at 17k. Today’s near 25k level is asking more questions than the market has answers for. But that’s my view only and is not shared by all.
- Gold – Historically the go-to precious metal when all else is turning bearish. Should investors get spooked by corrections across the DOW or bubbles bursting across the Cryptocurrencies – Gold is likely to be extremely popular and crowded. If Bitcoin (in physical terms best described as ‘thin air’) can trade from $100 to $19,000 in no time, then I see no reason why a precious metal like Gold traded for thousands of years cannot move up from $1300oz to test new highs at $1800oz or more. That may not happen in 2018 but it’s hard to ignore the allure of the ‘physical’ when all else begins to turn to mush.
- Property/Housing and Debt in general – Without wanting to sound like a bear growling into a megaphone, the signs for a UK Housing bubble burst have been around for a year or two. Normally it begins with a wobble across the Pond and then soon follows across the UK. But supply / demand metrics are very different in the UK now and it’s the lack of supply which has kept prices and demand at near all time highs. Lower rates has created a new ‘affordability’ level which suits some but not all. Banks are still cautious on lending (but not cautious enough in my opinion) and with rates rising, this is likely to tighten further. Consumer debt is at all time highs, cheap car loans are being issued like gym subscriptions. Pay monthly or yearly, no deposit required but beware of the lock-in period! Overall, the signs suggest a period of ‘readjustment’ is required otherwise events last seen 9 years ago will be repeating themselves like an unwanted dose of hemorrhoids. With unknowns such as Brexit, weaker UK economy growth and inflation concerns, there’s every chance the pre Brexit Osborne prediction of an 18% housing correction is indeed on its way to a postcode near you, albeit 18 months late.
In conclusion, we have the following before us; Stock market all time highs = Bubble. Cryptocurrencies testing all time highs = Bubble. UK consumer debt nearing all time highs = Bubble. UK property near all time highs = Bubble. Any one with access to a box of pins please step away from the screen now! All we need now is the same RBS analyst to crop up in early 2018 and proclaim ‘Sell everything!!!!!’. The irony is – RBS got it so wrong I am half expecting them to be bullish on 2018. If that event unfolds, then you assume the opposite and start investing in self sustainable allotments.
Every now and again it’s worth reflecting on the last few years. As an example, the DOW Jones was trading around the 10k to 11k level in 2010/11. Just 6 years on and the DOW is trading at almost 25k. QE aside, I can’t see any reason or genuine metric to support such growth. If the DOW dropped back to 17k, it would still look toppy. The Trump era was built off the back of ‘fake news’ and in my opinion we are in a Trump ‘fake market’. It’s a place where anything can happen. Crypto currencies heading for the moon and back. Bankers bonuses in the millions again. Complacency returning and not many willing to shout about it. It’s a dangerous place to be and deserves some common sense from investors across the board. Making money in the current market is akin to throwing darts at the FTSE350… blindfolded. It’s been way too easy and periods like this do not last. Conversely, trading commodities whether metals or oil etc has felt like walking a daily tightrope. Whilst the major players like Anglo and Glencore have done very well, the minnows have struggled as the funding market errs on the side of caution and leaves many projects sitting on the shelves. But as history shows us, when the easy money opportunities dry up or ‘pop’ – investors are forced to seek more risky alternatives in search for those strong returns. Depending on how you view the markets for 2018, one sector looks stronger than ever before and that’s ‘commodities’. It’s been a long time since there has been a commodity bull market and after years of bearish tones on PoO, the Saudi’s and OPEC appear to have finally agreed on a process to stabilise the black stuff. With Saudi’s planning their long awaited Aramco IPO next year, the safe bet might be on E&P’s. The even safer bet or decent hedge against broader market concerns would of course be Gold. Between the two, there might be a plan to trade / invest your way through 2018. But that’s something that you’ve got to make your own mind up on. There is of course no obligation to invest in the markets at all. And with bubbles appearing at every turn, the winning trade in 2018 might well turn out to be no trade at all.
But zero trading/investing makes for a very dull 2018 Hotlist. So without further delay, the following top ten picks for 2018 are ready to rock and roll.
A brief summary of each stock is provided below but requires all investors do thorough research and risk management across all.
First up is Amerisur. In short, the stock was trading at 34p last year when PoO was trading in early $40’s. Production has doubled and the company is debt free. I would be very surprised to see AMER still listed in 2018 as it’s a sitting duck for any would be predator keen to secure a presence in a newly liberated Colombia. M&A has been present in 2017, but far from busy. With the Oil market rebalancing, M&A could be back with force in 2018.
Price: 18.5p. 2018 Target price 65p.
Next is Columbus Energy Resources. Under new management, the company is now cash flow positive and has the potential to triple production in 2018. Should they achieve this, the share price should more than triple too. Schroders are not in the habit of investing in small caps but have made an exception with this company by taking on a 9%+ slice in a placing at 5p a share. More recently, Schroders pushed their holding to above 10% in open market trading.
Price: 5.45p. 2018 Target price 25p.
Next up is Cora Gold. This newbie was one of only a few IPO’s in 2017 and comes to the market with a ready explored Gold resource. That said, it’s still some way from gaining the much needed ‘reserves’ classification and is in the process of further exploration phases. Cora Gold is at first glance nothing special. It’s just like any other small Gold Miner – plenty of resource but years away from being able to fund it to production and gold sales. But here’s difference… Cora Gold is circa 34% owned by Hummingbird Resources. The latter has recently completed a production facility which is not far from Cora Gold’s licence area. This provides Cora Gold with potentially ‘instant’ production / mining facilities that other small cap miners can only dream of. The route to market is available and funding a $100m production facility is not an absolute requirement – although if the resource is great enough, there’s a chance they could go it alone. With a market cap just shy of £7m, it’s possible they could be trading at multiples of that in 2018 should the exploration phase go well.
Price: 12p. 2018 Target price 48p.
Next is Hummingbird Resources. The star performer of 2017 for TheShareHub picks keeps its spot going into 2018. Regardless of POG pricing fluctuations in 2018, HUM’s low AISC’s mean they will be producing serious cash from Gold Sales whether it be low or high. All indicators point to Gold heading higher in 2018 which could see HUM double with ease from today’s 34.25p level. Top class management and mining contractors suggest that HUM’s Yanfolila gold mine will be producing 130koz or more in 2018.
Price: 34.25p. 2018 Target price 78p.
Next is Petrofac. Beaten up heavily in 2017 due to SFO case which is ongoing. The stock was trading comfortably at 900p levels prior to news on SFO case and with PoO in the low $40’s. Since then, the company has secured further orders bolstering their order book heading into 2018. Debt is manageable and cash flows strong. As seen with the likes of Rolls Royce and others. It’s often the uncertainty of the SFO case that weighs heavily on the share price and not the eventual outcome or fine. Rolls Royce which was found guilty and paid their fine is now trading at 3 year highs. Petrofac carries risk but at 510p a share, there’s a chance a predator might swoop swiftly after any SFO news assuming the latter results in a Rolls Royce style fine.
Price: 510p. 2018 Target price 1020p.
Next is Premier Oil. Like HUM, PMO makes the cut for another year. In 2017, TheShareHub picks focused on 3 heavily debted companies that should have responded well to PoO’s recovery. Tullow and Enquest both underperformed and Premier Oil came through with a minor 3% increase on the year. Whilst it’s probable that Tullow and Enquest could prove market doubters wrong in 2018, it’s Premier Oil that looks in the best shape of all. To avoid the same error as 2017, TheShareHub is focussing on one heavily debted / high production play in 2018. This has no reflection on Tullow or Enquest and both should perform well assuming PoO remains strong and debt is actively reduced during the year. Premier Oil still has the weight of considerable CB’s to pay off or convert to shares. It might not be until end of Q1 before the share price really kicks into action.
Price: 76.25p. 2018 Target price 155p.
Next up is Providence Resources. Sub’ed in after the Ithaca Energey sale in 2017, PVR keeps its spot based purely on the potential to deliver the long awaited Barryroe appraisal phase. With market cap around £45m, there’s every chance that the market will rerate the stock once a farm out deal confirms the potential value of Barryroe which is cited to contain roughly 300mmboe in recoverable oil. There’s more across the folio to look forward too and surely the luck of the Irish has to ring true in the end for this Celtic Sea player.
Price: 8.75p. 2018 Target price 36p.
Next is Serica Energy. It’s a while since I have covered this stock. Staffed by an experienced team with clear ties to BP. The latter handed SQZ shareholders an early Christmas present by selling key North Sea assets to the minnow. In doing so, BP turned SQZ into a mid tier player. Sure – there are risks and unknowns attached to assets but assuming SQZ do not make a mess of it all, the company should be priced in the half billion range and that’s before they progress the rest of the folio. Amazing transformation for the company and in true fashion, the market is slow to applaud the share price.
Price: 84p. 2018 Target price 168p.
Next is Solgold. 2017 was a strong year for the company with huge resource discoveries and a move to main market. A couple of funding rounds now done and Solgold are not wasting any time. The company is fast tracking a number of target areas within their licence folio all within the riches of the North Andean Copper Belt in Ecuador. The Company has announced several world class intersections of continuous copper and gold mineralisation from the flagship project Cascabel. An MRE is expected in early January which is expected to be conservative and enhanced as the exploration phase progresses through 2018. With copper and gold prices doing well of late, SolGold will do well to avoid potentially aggressive takeover approaches. In 2016, the company turned BHP down and with such large resources at stake, another approach is likely from any number of predators seeking resource strengthening assets.
Price: 29.5p. 2018 Target price 90p.
Finally and by no means least, is W Resources. This small miner is in the right place at the right time. It’s main asset is in Spain and contains a very commercial levels of Tungsten. With Tungsten prices firming up and funding markets improving over the last 24 months for miners – W Resources looks set for a terrific 2018. Management updated investors towards year end on a potential funding deal being arranged for approx $20m to $30m. LOI’s are already in the mix for offtake deals with pricing expected to be at the higher end due to the mines european base. With a market cap of just £29m, there is clearly a large rerate required once funding is secured. That said, it’s not unusual for the market to assume the worst and price in very little for the best these days. If the debt / finance deal is good, the share price should multiply with ease. Still the small matter of development and execution to follow of course but one step at a time.
Price: 0.385p. 2018 Target price 1.8p.
In summary: Some picks from 2017 did not make the cut but that does not mean they are ready to be binned. It’s healthy to rotate folio’s and add in new stocks. Equally, it’s fair to say that if some of the 2016 picks like Glencore and Kaz were included or rolled into the 2017 picks, the overall performance would have been better. It will be interesting to compare the 2018 picks with the 2017 list at this juncture next year.
TheShareHub wishes all investors the best for 2018. Do your research and manage risks accordingly. Please read the risk warnings via the sidebar menu.
All ShareHub picks will be covered in 2018 along with the usual ‘heads up’ alerts on stocks of interest throughout the year. Two newspaper top ten tips will feature again in 2018. If you haven’t subscribed to TheShareHub yet, then simply sign up via the side bar. It’s free and alerts on posts are emailed to you with no delay.