ShareHub Hotlist 2019 Review – Week 23

Back in the black for TheShareHUB picks. A good week for all stock picks as the DOW bounced 1500pts on hopes of a US rate cut and an end in sight to a China Trade deal. Mexico tariffs were also a concern but appear to have been avoided for the time being. All in all, weak US Job numbers is certainly nothing to be celebrated. Growth is slowing and the longer Trade wars go on the more damage is done. Growth fears have commodity stocks under pressure with Oil being effected more than most due to the US production data issued each week. The market has been expecting ‘DRAWS’ as supplies tighten under OPEC’s cut in supplies. But lately, the DRAWS have been replaced by huge unexpected BUILDS. And the frightening thing is, this is with Iranian Sanctions in place, historically low Venezuela supplies and Libya production at near zero. If it wasn’t for these three issues, the market would be awash with Oil and prices would be $40pb again (Brent). In short, something has gone wrong. Either US data numbers are incorrect or OPEC agreed cuts are not being executed as agreed. The last two months data is more notable suggesting that someone somewhere (could be Saudi’s or Russian’s) are pumping more than they should be. OPEC are due to meet up on July 4th to agree on a possible extension to production supplies for at least 6 months. If data continues to be poor, they might need to consider cutting supplies further or at the very least ensuring all involved stick to agreed quotas and are not allowed to pump more than they should. As for US data, trust it as far as you can throw it. US rig counts have been dropping month on month for the last quarter yet production continues to rise. That’s not symptomatic of US shale. Historically wells perform initially at peak rates and then tail off fast meaning that new wells are required to replace them and that involves rigs. So again, something doesn’t quite add up here. It’s a bit of a mystery. But that’s the Oil trading market for you. More barrels are traded that actually exist and speculative hedging/shorting is rife. The fact that it’s possible to either have $40pb next month or $100pb says it all. The Saudi’s can’t cater for the speculators. All they can do is try and rebalance the market and they failed to it last year and thus far, they have failed to do it this year too. Their credibility is certainly being tested.

Overall, the uncertainty over trade deals, global growth, OPEC… all mean commodity stocks are out of favour. There are some cheap stocks out there – that’s for sure. But a lot of unknowns need sorting out before the sector can see some bullish action. Small caps on the other hand trade in a cosmos of their own. Anything can happen on AIM. Stocks like MATD, I3E, PVR and many more drilling huge targets over the next few months are in favour as these are not effected by Oil prices near term and due to small market caps, they can multibag upon any significant discoveries. The Risk vs Reward ratios vary. From drilling wildcat wells to drilling almost ‘appraisal’ style wells. The latter generally have CoS of 60% to 70% or more. So you have to pick your AIM exploration stocks carefully. Some have a much better chance of success and in theory this should be reflected in their market caps… but often it isn’t, which presents opportunities for savvy investors.

Week 23 – Review:

A good recovery week for TheShareHUB picks as they climb back into the black. The two newspaper top picks tread water. H2 is approaching fast and the year is zipping by. It’s either going to be much of the same in H2 or with a US/China trade deal agreed, it could be new highs for all stocks and a terrific end to the year. With US elections around the corner, Trump will be keen to see markets do well.

Independent top picks 2019 – week 23
Guardian top picks 2019 – week 23
TheShareHUB top picks 2019 – week 23