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: