ShareHub Hotlist 2018 Review – Week 16

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.

One thought on “ShareHub Hotlist 2018 Review – Week 16”

  1. Why would the Saudis want to take their eye off the POO ball after the Aramco sale? They have so far said they only plan to sell less than 5% of the company, so that leaves 95% of the family silver still in their hands, and oil is the Saudis principal asset.

    The biggest threat to the current high POO appears to be increased supply of US shale, but I haven’t heard of any great lift in output or rig count yet.

    Hub, if you had to take a punt on investing new money in one or two of the mining majors like Kaz, Glencore and AA discussed here, or maybe RIO, which would you choose and why? None of them are in your 2018 Top10, but Kaz and Glencore were in 2016.

    I have been invested in HUM since August 2017, and it’s been a frustrating time with very little happening in share price terms; at 32p HUM is currently testing new lows since the August 2017 leap from 26p. However I’ve had a similar testing time for over a year with SDX, and this is finally coming good, so like you I have some faith that “the market” will eventually recognise HUM’s excellent story and real production, especially if the reserves for Yanifolia can be built up by HUM’s current drilling campaign, by CORA, and any deals HUM can strike with other local ore producers. HUM is also theoretically a great play on the gold price, except there’s been scant evidence of this during the recent rise in POG, presumably due to market scepticism that HUM is actually producing and selling the stuff in good quantities at the higher prices. Roll on the imminent trading update!

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