2015 Hotlist – Final Results

There’s no hiding from the carnage seen in the commodity sector over the last 3 to 4 years. It’s been pretty ugly going since late 2011. That’s 4 to 5 years of asset value erosion.

It began shortly after the post Lehman bounces (2009 to 2010) as QE from US and EU policy players brought easy money to investment banks which in turn delivered cosy 20% to 30% growth rates out of what would have been sluggish bluechips. Instead – these stocks put in almost penny stock like performances with some doubling and trebling.

Meanwhile the risky stocks like commodities were no-go zones for some investment firms. Whether that be because of risk caveats post Lehman’s or via internal policies, the trend for speculating and taking on risk for reward had been reversed. There was no need to bet the farm on a 20% chance of success (cos) drill in deep, deep water – they could simply invest in Sport Direct or Thomas Cook and get the same multibagger growth.

So what’s changed? Well, 2015 ended with POO at near 11 year lows, US rates rising and QE dropped by the US fed reserve months ago. Stateside, ‘things’ are moving back to ‘normal’ but the problem is… EU side or Asia side – things are far from rosy. Mario is still firing off Bazooka’s and each round of QE to the eurozone brings with it a different playing field as it’s no longer a joint effort, it’s all down to the EU and the EU only to sort out their affairs. And they have problems that are not going away anytime soon. Grexit is still very much on the cards and it feels like the market is waiting until the broader world economy is recovered sufficiently to allow the inevitable Greek departure to go ahead. But… with US elections around the corner (nov 16) don’t expect too many shocks before that event unfolds. Historically the stock market mysteriously behaves itself ahead of US elections.

So how’s 2016 looking? Well,  if you take the above into account and assume there are no trauma’s across the EU and China, then it’s looking like being a rather boring year with not a great deal of activity. With QE drying up  (US only) cheap money is not as cheap as it used to be. Investment banks and banks in general have had a nice cosy period to repair the balances and damage caused by Lehmans in 2008.

But catalysts for growth in the blue chips are few and far beyond. The margins and PE ratio’s are still ok (historically) but there’s just nothing out there that says DOW to 20k or FTSE to 8000. If anything, there are more arguments to see DOW at 15k and FTSE at 5.5k levels.

As for more risky stocks…it’s probably still a wee bit early for the investment banks to get back to their over speculative and risky strategies. This is not good news for commodities but it’s better news than what was in place in 2015. Furthermore, risk taking on commodities at 70% discounted levels to 2015 opening prices – places the sector as the one most likely to recover or bounce in 2016. POO and metal prices will naturally drive interest but there are additional M&A moves that can refocus the market to realistic asset values rather than casino market auto bot algo share prices.

You never know, 2016 could finally see a transition from over bloated bluechips  back to beaten up commodities. It might not be until 2017 before the latter begin a proper recovery but with prices on the floor and below Lehman’s crisis levels on many stocks – interest will surely grow. For those sitting on the sidelines… well done! 2015 was certainly the year to Sell in May and not come back at all! But with every bear phase or commodity cycle, comes the opposite or the bullish phase. History proves this.

It wouldn’t surprise me one bit to see many of those sitting on the hands finding it ever increasingly hard to keep those digits away from the buy button.

The results for 2015 are below. A big well done to Charles Stanley Brokers who turned in a very respectable profit of 5.75%. If you exclude the numerous dividend payments, the results would have been higher still. The Independent slipped into the red which is the first dip into negative territory in nearly 3 years for their stock pickers ending 6.8% down. Their impressive 3 year reign comes to an end and perhaps indicates the true underlying trend for the FTSE100 which ended 4.9% down for the year. However, it should be noted that the index also hit an all time high at 7104 on April 27th. If you take that peak, the fall from grace is a more nasty looking 13%.

But compared to the commodity sector performance – that’s nothing! In fact, much of that FTSE100 4.9% fall can be attributed to big oil players like Shell and BP. Glencore’s near 75% tumble has done the real damage. The commodity focussed sharehub hotlist came in at 61% down for 2015 which also accounted for a 100% wipe out on Afren. Using a number of sector bellwhethers – the average decline for 2015 was closer to 70% so looking on the brightside, the sharehub hotlist out performed the broader commodity averages.

A 61% decline is still atrocious but relatively inline with POO’s fall from $90’s to $30’s.

Final results as follows:

Charles Stanley - FinalIndependent 2015 Final

TSh 2015 Final

 

 

2016 Hotlist coming soon!

The 2015 Hotlist Results will be posted next week, bringing a close on a very ugly year.

The 2016 Hotlist will be released before Jan 4th. As with the past 3 years, it will be commodities focussed, so if you’ve had enough, switch off now!

It’s christmas eve – so time to do some early peeking. The following 2 stocks can be unwrapped early. They formed part of the 2015 Hotlist and will be rolled over into 2016.

  1. Faroe Petroleum.
  2. Xcite Energy

The remaining 8 stocks will be revealed before Jan 4th.

Where’s the BOTTOM?

sinkhole

It’s been pretty ugly over the last few months and it’s not just the usual summer malaise. The “Sell in May” mantra looks like the best call by any Broker across the globe. Problem is, not many brokers called it.

There are plenty of reasons to remain sidelined and keep your cash safe. And where commodities are concerned – it’s been like watching ‘sink holes’ appear across the sector. Minnows and mid caps swallowed up as the carnage continues to take on casualties.

M&A is perhaps the only catalyst near term that can add back some sense of value to what has become a disconnected casino market.

One thing is sure though, where there are losers, there are winners to follow. Those cash rich companies with an eye for acquisitions are going to be like kids in sweet shops. The key is to try and guess which sweeties they are likely to go after first. One view is that low hanging fruit with reduced risk is the first port of call. Followed by companies with assets in regionally safe or stable parts of the world.

5 picks that could be the first to be acquired or benefit from M&A fever when it arrives are as follows:

1. Enquest (currently 25.5p)
2. Ithaca Energy (currently 28p)
3. Premier Oil (currently 91p)
4. Amer Resources (currently 22.75p)
5. Tullow Oil (currently 181p)

Many of the above have heavy debt – this kind of debt suits the bigger fish. They can manage it , reneg it or pay it down – whichever suits them best post acquisition.

It’s too early to call bottom within the markets in general as the major indices still look frothy on QE and have been long overdue a pull back.

But commodities have been on a downward curve now for over 5 years. Historically M&A tends to kick off the recovery and with prices now cheaper than ever before or since last decade, i think the bottom could be insight. When the summer months end and traders return to their desks in early Sept (next week) you could see the beginnings of a market recovery for the beaten up commodity sector.

OPEC and other oversupply issues are still to be managed but the slow down in China should be priced in. The trouble is… China is a big unknown. It’s time for the chinese to do their part and kick off some significant QE. Europe and the US have done their part. If China wants to avoid the carnage then they’ll need to do more than play the currency war.

So…don’t rush in. Be smart. Do your research and watch for signs of M&A whispers followed by the real deals. Seek advice if you are unsure as volatility brings with it increased risk. It’s not a market for beginners nor even the experienced. There are many hedge funds and brokers on the wrong end of this recent market correction. If the experts get it wrong, then you know your chances as a PI are tougher than tough.

It’s a fool’s game calling ‘bottom’ but at present I think September could see a recovery which would make those following the “sell in May” mantra very happy indeed. Dare I say it… (more fool me) but I think the Commodities Bottom could be a few days or a week or two away. But that doesn’t mean an instant turn-around. It’s likely to take 6 months+ before POO begins to show signs of a stable balanced price and that’s assuming currency wars are put to bed.

For the larger indices – the DOW looks fairly priced at around early to mid 14000 based on little assistance from QE. That’s still some 1000pts away. If I’m right, then it could see the 14000’s sooner than many think.

Updates on the hotlists will follow but I can tell you now… none of the lists are looking pretty.

2015 Stock picks Performance – Quarterly Review (Q1)

Q1 Review of 2015

Spring is firmly in the air and green shoots are beginning to show after what can only be described as a very harsh winter. Too many dark days and as stated in the opening review of 2015’s hotlist picks… it was always going to be a tough Q1 for commodities.

Understandably, investors are weary, tired and sentiment is at lows across the sector. The majority of O&G based growth funds are looking in a sorry shape. Meanwhile, FTSE100 trackers are flying. The index posted its highest ever close a few weeks ago. Mario and QE4 can be thanked for that. Easy money has been the thorn in the side of any risk-on trading. The city/market just doesn’t need the stress or exposure when cheap money is handed to them on a plate. Chasing an uncertain sector like Oil & Gas makes little sense right now. But that doesn’t mean a few II’s are not nibbling away behind the scenes. In fact quite a few holdings have increased as the deep pocketed funds buy in cheap ahead of the inevitable recovery. Inevitable why? Because OIL always comes back and comes back hard. With rig counts dropping and projects across the globe on hold or even binned in some instances, the snap back to higher prices will come and history is your guide.

There are hurdles ahead. Iranian oil volumes have been pegged back due to US/UN sanctions as have Iraqi oil supplies over the last few years due to political stalemates. But both countries are on the verge of producing record number volumes. Iran may not be in a position to flood the market just yet, but the hope is that supply vs demand is at a level that can take the increased supply. Looking back at the Shale revolution, one has to cast an eye at the ‘gap’ that was either created or filled by chance by the US shale developments. When Sanctions hit Iran, volumes were significantly reduced. The Shale boom could be said to have come directly because of this drop in supply from Iran. It’s perhaps no surprise then that as Shale dies down, it makes way for the return of Iranian volumes. Equilibrium or was US Shale just the house sitter?

Looking ahead, key events in Q2 are of course the Iranian deal which is expected to be pen’d in around late June or July. By coincidence or not, OPEC are set to meet again around the same period to decide on their next course of action. The way the Saudi’s are operating (record volumes) I’m not expecting any change in policy. To date, they’ve played a blinder. It’s turned the Oil industry upside down in the process but with rig costs at $350k per day on some exploration projects it’s a chance for the industry to refocus and reduce all operational costs. The Industry party’d when the times were good and should have put money away for a rainy day. But as seen by politicians across the world, most look no further than the end of their noses.

Q2 looks like a quarter that might confirm the bottom is in POO and with that the dark days for many could be over.

The very fact that Goldman Sachs is working its derriere off to get as many negative views out there suggests they are running out of time filling their boots at low prices.

I can understand their focus. They want capitulation and a faster end to the US Shale era. Why? Because they know the recovery will be stronger and more stable especially with Iranian supplies parked around the corner. With POO at high 50’s, some Shale players will just about scrap along. The faster the fall over the better.

Thesharehub has moved to quarterly reviews due to the near catatonic nature of the commodity sector. There just isn’t the momentum or news flows to warrant more regular reviews at present. But hopefully that will change in Q2. Next review is up in 11 weeks or so.

Thesharehub will continue to give heads up posts or highlight individual stock developments if and when they happen. The coming weeks and months should see some corporate action taking place such as mergers and takeovers. Shell and BG have (at last) kicked off M&A season in style with one of the largest energy deals made in the last decade.

Stock picks summary:

The sharehub’s hotlist is commodity focused so no surprises to see it heavily down. But that said it’s down by over 32% and almost 10% of that decline is down to Afren. If investors needed a cold shower , then Afren is it. It’s a classic example of how Boards/directors can single handedly be asleep at the wheel. Companies are run by people not machines. These people are either high calibre or average or poor calibre. In Afren’s case – poor management resulted in the business effectively being handed over to bondholders. Was it complacency or did OPEC’s move really pull the rug so swiftly?

One stock that thesharehub did pick well (a feat in this downturn) was Faroe Petroleum. Run by smart management with a clear goal to avoid excessive debt levels and make progress as and when the company is in a position too. Faroe is a benchmark in my opinion of how to run an oil and gas business in the small to mid tier level.

Charles Stanley’s picks for 2015 rule the roost in Q1 with the Independent in the unusual position of second. Gains are moderate considering the FTSE100 tested all time highs and the majority of picks across these two are FTSE100 based.

Stocks to watch in Q2 are Gulf Keystone – finally this story may be coming to end soon. Shell’s large purchase of BG suggests the majors are keen to take advantage of the correction in the sector. Whilst GKP has its woes (lack of cash/funding opportunities) a deep pocketed super major could be just the ticket the KRG need at present.

And…it’s not just Super majors that will be looking at M&A. Many middle tier players like Premier and Ophir will be looking over their shoulders wondering who’s prowling. Companies of this size would likely be seeking mergers or acquisitions of their own to help bolster their values ahead of any predatory approaches. Ophir’s purchase of Salamander is a prime example of buying in production but also adding in additional reserves/2c numbers.

As mentioned earlier Faroe are worth keeping an eye on as they have a mix of exploration wells underway and due to kick off. A rare event in current market when exploration is nil excluding FI’s of course. Some drills have greater success than others – so do your research.

And best not forget Sirius (SXX) could finally be on the verge of gaining the much needed planning approvals. Any good news on that front could see the stock double. Equally, bad news or delays to planning app could see it half. Risky but potentially high reward upon success.

More updates to follow over coming months.

Current standings / Q1 Results

1. Charles Stanley’s Broker Top Ten 2015 +6.30%
2. The Independent’s Top Ten 2015 +1.04%
3. TheShareHub’s 2015 O&G Hotlist -32.31%

Click on Portfolio image to enlarge:Charles Stanley Q1Independent Q1Hotlist 2015 Q1

2015 Hotlist Results – Week 02

Week 02 of 2015

What a start to 2015. It’s been rocky from the off, but last week really was a rug puller. Oil stumbled to test low 40’s before bouncing in days back to test early 50’s. Volatile is an understatement. The dust clearly has not settled on that commodity. But the real story of the week was all about the Swiss currency. My o’ my. You’d think that the plethora of autobots and algo’s would have at the very least modelled in the chances of the Swiss taking action ahead of any moves by the ECB. Well, looking at the number of hedge funds that seem to be going under – that theory is shot. Currency speculators or ‘gamblers’ were virtually wiped out in one of the busiest days seen in the markets since Lehman’s went pop. The ramifications of the ‘currency’ war are probably yet to show themselves fully as when the dust settles there is bound to be some knock on effects.

Moving back to Oil&Gas. I remarked last week that the moderate drop in some E&P’s looked generous considering the inevitably weakness in POO and with many still away from the desks after seasonal hols, volume was light. But week 2 saw the market back to normal and the full brunt was felt across the sector.

Rig counts continue to fall, projects are being shelved and jobs are being lost. The Industry is winding down faster than many thought and yet very few brokers seem willing to acknowledge this. The reality is, if this continues, then the POO should be rising and not falling. Markets are forward looking and regardless whether oil is $50 or $80 – many of these projects and jobs will not be back on again for sometime – certainly 12months+ in many cases. Projects take planning and budgets are mostly done on a yearly basis. Hence even if the POO recovers in H2 the rig count and reserve numbers will continue to suffer.
All this points to a stronger recovery in POO when it finally arrives. But short term, companies with large debt piles are under pressure to ensure they avoid breaking covenants and meet debt repayments. This is prime M&A ground. When companies look to make cost savings – they also look at ‘combinations’. These may be JV’s or asset swaps/sales or complete mergers.

Looking for indicators in volatile markets is not easy. But one thing that cannot be hidden easily is stock ownership. Just look at the II’s buying up stock. AMER, HUR, TLW and others have all seen increased holdings by a few II’s/Funds. There are many more out there adding rather than off loading. Don’t get me wrong… plenty have downsized and managed exposure. But evidence of ‘buyers’ is clearly out there.

A virtual portfolio has been set up using the 2014 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. One newspaper top ten picks for 2015 and one Broker Top Ten for 2015 picks have been included to help monitor/compare against.

Week 02 stock picks summary:

Week 2 was brutal for commodity plays but the broader markets performed ok. Charles Stanley leads the pack and the Independent follows a close second. The TSH Hotlist was always going to have a tough beginning to the year but the theory/hope is that H2 delivers a strong bounce back. If Oil remains at sub $50 for the bulk of 2015 then the wooden spoon prize may as well be handed out now. A bit of M&A would do wonders for the O&G Sector – Afren/Seplat could set the ball rolling when or if an offer is made on Jan 30th. Certainly one to watch for all sector followers. Counter offers and a bidding war would be even better.

Current standings / Week 02 Results

1. Charles Stanley’s Broker Top Ten 2015 +0.82% (Weekly gain of 0.62%)
2. The Independent’s Top Ten 2015 -1.13% (Weekly gain of 0.04%)
3. TheShareHub’s 2015 O&G Hotlist -14.31% (Weekly loss of 12.51%)

Click on Portfolio image to enlarge:CS week 2Indie week 2TSH week 2

2015 Hotlist Results – Week 01

  Week 01 of 2015

The first trading week officially got under way and includes Last weeks single day trading (Friday), so a 6 day week in all.

Straight off the bat markets got off to an ugly start as fears over Greece seemed to cause early jitters.  Oil continued its desire to plunge lower. After ending 2014 50% down at $57pb (Brent), the slide continued throughout the week and on Friday tested sub $50pb. There is plenty of chatter in the markets that Oil could continue its weakness all the way down to $20 although most suggest $35pb to $40pb ranges. Those familiar with ‘market talk’ may well translate the above as meaning Oil is heading for a bounce back soon. Placing Irony aside, there is a genuine possibility that Oil could test $40 or $35pb. Why? Because 9 times out ten the market always over corrects or overshoots. The Saudi’s may have taken a tough line on protecting market share – but you have to tip your hats to them. They know their stuff. Shale producers in the US are beginning to fall like flies. The market will indeed correct itself but only once these share producers are put out of business. Many of these companies rely on forward lending / debt to enable projects to begin. Regardless of whether Oil snaps back to $80 again or not… lenders and investors will be twice shy when entertaining any new Shale stories. The Saudi’s have effectively ripped the heart out of these producers and no bank in their right bank is going to fund a project which is essentially in the hands of 3rd party control.

So… how long does it take before the market realises that production and supplies is drying up? Well, it might take just 1 quarter. With Oil at $50 and potentially heading lower, it’s not only the Shale players that are getting zapped – it’s virtually the entire industry.

Next week Premier Oil, Tullow and Cairn to name a few are set to issue trading statements and ops updates. On Monday, many leading Oil companies and small caps are presenting at Macquarie’s Annual Oil conference. These are the first key events to happen since OPEC pulled the plug on the Oil price. The next few days will be very interesting reading for Oil&Gas followers. And there will be more updates the week after and the week after that. Whilst many companies have hedged future oil sales at much higher prices, the concern is not so much on cash flows incoming but cash flows outgoing. The market is braced for a huge reduction in capex. It’s not hard to see where this is headed. With future exploration and production plans being shelved – the market will soon start to panic on where the next oil supplies are coming from. And that’s when the Oil price will begin to snap back into higher ranges. But for many companies… by pushing projects back or even binning them, it could set the overall business back by years. Once a project has been shelved it can be quite tricky to get it back up and running especially if funding / banks are more risk adverse to the sector due to volatility/uncertainty. This is where alternative plans come into play. These can involve asset sales, JV’s or mergers or even predator like acquisitions. Consolidation kicks in as the bigger fish with large cash balances mop up the struggling debt laden minnows and mid tier players.

For some companies – it’s going to be a matter of praying for a short term oil dip and a swift bounce back to higher prices.

Anything longer term and that’s a big concern. Hence – the faster and sharper the Oil price fall potentially the better it is.  A slow death is far more painful than a short sharp jab or two.

The coming weeks and months leading up to March/April should provide the market and world with the data to determine the demand for Oil&Gas. By the time the Saudi’s hook up with their OPEC members in July, they may well decide to cut a few barrels to see if projects suddenly swing into action again. Or turn the taps on and take up the slack and market share again.

Either way – the Saudi’s are in full control.

The Dow closed week 01 down just 86 pts and closed at 17737. Earlier in the week the Index tested below 17300. The FTSE 100 closed down 65 pts at 6501.

A virtual portfolio has been set up using the 2014 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. One newspaper top ten picks for 2015 and one Broker Top Ten for 2015 picks have been included to help monitor/compare against.

Week 01 stock picks summary:

2015 sees the introduction of a broker top ten picks. The reigning champion ‘The Independent’ top ten picks is included again along with thesharehub’s Oil&Gas focussed Hotlist.

Considering the near 15% slide in Oil Prices since 2014 closed out, I was expecting more of a bloody nose when it came to the sharehub’s Oil&Gas picks. However, remarkably many sector players have traded up or sideways against the latest oil slide. For instance, Tullow was trading at 358p levels when the Oil Price was falling to the mid $60 levels. Today, Tullow’s sp is around 390p with Brent POO at $50pb. That’s a fall of almost 25% in the price of oil (POO) and a rise of almost 10% in Tullow’s SP.

So what’s going on there then? Over shoot on the sp and a correction perhaps? Or is the market beginning to BUY these stocks ‘ahead’ of any potential Oil rises? The facts are … many Oil&Gas stocks are now rising or recovering against a continued fall in POO. That’s a trend that needs some attention over the coming days and weeks. It could hold the key to any impending POO bounce back.

Finally – the chart below shows Goldie boys view on where Oil is headed. That said – these boys are notorious for saying one thing publically and then the opposite happens. Retail investors are apparently ‘muppets’ according to some at Goldman’s. That says it all.oil-price-prediction-decmber-2012-june-2016

Current standings / Week 01 Results

1. Charles Stanley’s Broker Top Ten 2015 +0.20% (Weekly gain of 0.20%)
2. The Independent’s Top Ten 2015 -1.17% (Weekly loss of 1.17%)
3. TheShareHub’s 2015 O&G Hotlist -1.80% (Weekly loss of 1.80%)

Click on Portfolio image to enlarge:Charles Stanley Picks week 1Indie week 1TSH week 1