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 But lately, the DRAWS have been replaced by huge unexpected BUILDS.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.
A better week for TheShareHUB picks with PetroMatad notching up ‘2 x Multibagger status. The stock looks odds on to deliver a 3 bagger and possibly a 5 bagger should they deliver with the drill bit this summer. Plenty can go wrong so always huge risk with explorers. But the chance of success looks higher than previous wells so it’s fair to expect the market to build a little more into the pre TD pricing compared to last year.
It’s been a tough 6 months+ in the markets across commodity focussed stocks. Miners have been shunned. Oil stocks ignored despite a stronger and more stable Oil price. Large debt weighted companies like Tullow, Premier Oil and Enquest are all making inroads into paying down debt whilst also maintaining capex. The latter is important as if you don’t invest in the future, you’ll end up with depleted reserves and falling production curves. The key for debt heavy plays is to strike a steady balance between, debt reduction and capex. Premier Oil and Tullow appear to be doing this faster than Enquest and have more depth in the folio’s when it comes to resources and exploration. M&A has gone a bit quiet since the last large deal involving Occidental and Anadarko. The acquisition ‘ink’ might remain dry until clearer signs can be seen on China/US talks. Talk of the Fed Reserve cutting rates should support equities near term but to make significant progress, trade talks really need to be settled.
With June upon us, the official ‘summer drill’ season is here. There are plenty of stocks out there drilling big targets in 2019. It’s a small window for north sea focussed companies as drilling in the winter is dangerous and can be expensive. Hence, any delays to drill plans can often push campaigns back by 12 months. So one lesson for keen investors to learn is never ‘assume’ the drill bit will be turning until the company finally confirms the official spudding event. In many instances, promised spud dates tend to be too optimistic and are often a few weeks delayed or in the case of PVR (announced this morning) delayed by up to 2 to 3 months+.
Elsewhere across the ShareHUB picks, SOLG were under heavy fire from shorters and nervous investors when news materialised last week suggesting that their licence blocks could be under threat. The share price fell from 36p to test 24p in just 2 days. Losing around £160m off your market cap based on nonsense news sums up the markets today. Too many Bots and Algo’s chasing price changes and paying zero attention to the validity of news. It’s more and more like a casino/bookies out there today. Currently the SOLG price is back to where it was at 34p/35p level but still some 10p off previous 2019 highs.
Week 22 Review:
The ShareHUB need a few summer drills to come up trumps if they are to catch the Independent top picks. With AMER, MATD and SOLG all with or about to kick off big drilling campaigns, the chances are one or two will deliver the goods… one hopes!
Finally, the second Heads up of the year was issued exclusively to email subscribers yesterday. The full note on ‘I3 Energy’ (i3E) will be issued next week to all readers. Target Price 120p.
And last of all… hot off the press this am, Goldman Sachs have issued an Upgrade to Petra Diamonds moving the stock to a BUY recommendation and price target of 32p. The stock was last trading at 21p. PDL is part of TheShareHUB 2019 top picks.
As with all stocks/information mentioned above. Please read the risk warnings in the sidebar.
A short update this week. Much of the same across markets with China/US still bashing each other with handbags. The idea of Boris Johnson taking over the country from Theresa May can only be entertained within what has become a madhouse of a conservative party. The country needs stability. It needs some ‘grown ups’ and thank goodness Mr Bercow is staying on for another period time. Without him, it would be like something from Lord of the flies. Any Conservative politician that has been directly involved with Brexit needs to remove themselves from the list of PM candidates pronto. A fresh face, one that has not shown a single level of self preservation over importance of Brexit deserves the premier post.
Week 21 – Review
The newspaper picks continue to stutter as the market continues to show signs of risk off sentiment and overall cooling of interest while US and China bat it out. TheShareHUB picks suffered a blow after a terrible update from Wishbone. The company began 2019 with plenty of optimism but now appears exhausted and ready to fold. A poor show and investors deserve more answers from management. More problems at Hummingbird’s Yanfolila means a more protracted and dragged out recovery phase ahead. Ops appear to have stabilised but costs have spiralled and with wet season approaching, the company cannot afford any further reduction in cash flows/production. Better news from PetroMatad on drill plans and permits ahead of a July spud. This may slip to late July or early August but when the spud finally arrives, the stock should be flavour of the month. Elsewhere, Petra Diamonds has had a choppy time of late as large institutional holders go through transition periods and that’s taken its toll on PDL’s share price. Based on valuations and broker targets, the stock looks every part a 45p share trading at 22.5p. The traditional summer ‘half price’ sale is already underway there. Not without risk of course, but the worst does seem to be over for PDL. Cash flows are expected to be stronger in the final quarter which ends June 30th. Broker consensus targets range is between 30p to 50p. Although, there is one broker sitting at 25p. Finally, CERP continues to drift lower as investors await some solid signs of a much promised SWP exploration well in 2019. TheShareHUB picks need some good news and hopefully that will come from Amerisur Resources which have two drills underway. Platanillo-26 is a minor exploration play and not of much significance or importance, however SOL-1 on the CPO-5 block is important and the market keenly awaits the results from this well which should be forthcoming in June.
As mentioned a while ago. The idea that the US tech firms are a better and safer option than Chinese firms is a little hypocritical especially after several scandals of late involving US companies. What is even more concerning is that these tech firms are answerable to US government policy. So in effect, Google, Facebook, Apple and others are all US government controlled. Does that mean that they share all data with the US government too… when asked? Facebook and others are extremely keen to demonstrate that they are independent of the US Government as that’s seriously not a ‘cool’ association to have for young folk. Who wants big daddy watching you? The truth is, it’s inescapable. The Huawei issue is not so much about security issues but more about US protectionism which has been rife before and more recently since Mr Trump’s ‘America First’ policy. Maybe it’s about time the ‘globe’ began protecting itself against US domination. Stop shopping on Amazon until they pay their fair share of taxes to the countries they trade in. Stop buying Apple phones for security reasons. Stop using Google search.. the list goes on. For the rest of the globe, perhaps it’s time to put ‘America Last’?
Week 20 was another choppy affair as US/China issues roll on like some predictable soap opera. It’s beginning to look like the Chinese will be smarter to just sit this out until November 2020. By that time, Trump’s number should be up and the Chinese can begin negotiating with the new US president. Not long to wait, 15 months will fly by and Mr Trump knows it which is the main reason why he’s upping the volume level. For the markets, it’s frustrating. Another 15 months of this and recessions will be upon us… globally. They might be shortlived or a blip, but enough to get the Algo bots in a spin and we all know how that can end up when the black boxes go into overdrive. So at present there is a cautious feel out there. Throw in Brexit unknowns and Iranian issues into the mix and it’s not a great backdrop at all. All this leads to a weaker commodity outlook as global recession fears nearly always result in a slice in commodity values. From Miners to Oil&Gas stocks, it’s a bit like being stuck in the mud at the moment. M&A is alive but there’s not much of it across the mid tier and smallcaps. It’s a big boys playground with OXY/ Anadarko size deals. Barrick Gold/Rangold tied the knot late last year. Then Newmont and Goldcorp, followed by PanAmerican and Tahoe. It’s merger mania out their in the big miners sector. But imagine if that level of merger activity was to sweep across the small caps or mid tier players. Tie ups like Tullow & Premier Oil? Amerisur Resources and Gran Tierra? Hummingbird and Endeavour. Some of these would be more like takeover deals than mergers but the point is… are investors better off with having a plethora of stocks to choose from or would the market place be more interesting with fewer stocks, lower staff levels, fewer board members, fewer remuneration awards etc. Institutional investors which have been leaving the commodity sector in numbers might well be buyers again if consolidation took place. Many stocks out there are fragile on their own but if combined with a like for like business, could flourish and grow faster through enhanced size/reduced debt/cash flows etc. Sometimes, offering investors fewer choices but higher quality investment opportunities can actually drive a more fluid and active market place. Combining businesses really can deliver better opportunities for all involved. Of course it doesn’t suit all – poor performing management teams will be given P-45’s. This would make for a refreshing change from BoD’s which have been around too long, delivered very little but have nice fat pensions and bonus share pools built up for themselves. In Premier league terms, if a team finishes bottom, the net result is usually a managerial sacking. For many AIM listed senior Directors, if they finish bottom, they just issue more shares and go again rewarding themselves like nothing has happened, completely blind to the share price destruction of previous months or years. AIM and the mid tier of companies could easily be reduced by 50%+ and the market would be fine. In fact, it would be much much leaner and better for it.
Week 20 Review: The Independent remains top but has lost some steam of late. TheShareHUB picks are struggling to gain momentum in this risk off market as commodities continue to be shunned across the board. The irony is, where O&G stocks are concerned, the backdrop to Oil looks strong especially after OPEC’s stable supply management plans and more recently sanctions on Iran. It’s global recession fears that are doing the damage near term and until Trump/China kiss and make up, it’s hard to see the market shifting its stance. Frustrating times ahead for all involved.
Another turbulent week passes with Mr Trump tweeting his way out of a China deal. There is an art to doing business with the Chinese and number one on the importance list is always do it in a way that ensures no one loses face. They don’t like public debates and prefer more honorable ways of getting deals done behind closed doors and not wide open in the media eye. Mr Trump sees things differently and his latest tweet round looks guaranteed to set back trade discussions by at least 6 months. It therefore comes as no surprise that the Chinese are already looking beyond Trump and to the next US President to form new relationships and no doubt a new trade deal. At the current rate, any successful Trump trade deal with the Chinese is likely to go the same way as Obama Healthcare. The moment Trump loses the US November 2020 Election, the chinese will be renegotiating with the next president hours later. There’s always a chance that Mr Trump gets re-elected but I think at this stage the Chinese are already beginning to hedge their bets wisely. This trade war is very different to the EU and UK Brexit talks but the end goal strategy of trying to reach an agreement is similarly based on ‘stretching out timeframes’. Keeping the clock ticking over is undoubtedly an under-rated success tool. Mrs May has run down the clock during the first 3 months of 2019 and more recently the last 2 months with pointless Labour discussions. The reality is – Mrs May is continuing the same delay tactics that she used with the EU and the EU have nothing to do with what’s going on at present. What’s she got to lose? Nothing, as she’s out the door in a matter of weeks anyway. In a situation like this, it is a wonder why she is still being allowed to run the show. Someone that has nothing to lose really should not be in charge of Brexit discussions. That said, none of the other conservative leaders look like they could do any better. Same goes for Labour and so on. These are intelligent people afterall. Which begs the question over whether they are all being completely ignorant purely to ensure that the only outcome possible is to….Put it back to the people to decide. Well, the facts are the ‘people’ decided nearly 3 years ago. It’s the politicians that have not delivered it. And that’s a poor show for democracy. The people voted. It’s the job of MP’s to deliver it. Get on with it, there is no mandate to put it back to the people.
Moving on… the surprise of the last few weeks has to be the continual ‘BUILDS’ in the US Oil Production & Inventory reports. It wasn’t that long ago that Mr Trump was asking the Saudi’s and OPEC to pump more oil to get oil prices down. The Saudi’s simple reposte was that the Oil Market is rebalancing and they are sticking to their plans. Well done them, as data is far from supporting Mr Trump’s view that we are short on supplies. Quite the opposite, we seem to be still drowning in the stuff and that is despite huge volumes being wiped out of the supply chain by Libya, Venezuela and Iran. Just imagine where we would be now if those countries were still producing at previous levels. As mentioned before on TheShareHUB, US EIA numbers seem to be a bit flaky. Unreliable would be the best description. Thus far OPEC have stuck to their quota agreement, they know what’s required to get a balanced market but for some reason, even OPEC can’t quite get there. It’s as if there is a never ending supply flooding the market that has yet to be identified. Or – it’s Oil traders creating ‘virtual’ trading pools and trading in stocks that do not exist now but may exist in the future. Mmm… that’s a recipe for a disaster if true. The biggest mystery of all is how US production continues to rise at a pace despite the rig count dropping to levels last seen some 2 years ago. Rigs mean ‘activity’. If activity is dropping, why are Oil supplies rising? It’s a puzzle that will no doubt become clearer as the year drifts along. But for the moment, OPEC are completely in their rights to stick to their plan. In fact, some might say, they should extend cuts/quotas into 2020.
Week 19 Review:
Oil focused stocks are drifting along with no clear direction and mirroring the current impasse of Crude/Brent prices. Whilst the drop has been moderate with $4pb to $5pb being shed, many equities have traded much lower. PMO is trading back at 88p after testing 108p not long ago. Tullow down from 250p to 215p. These are 15% to 20% declines. That’s significant and disconnected to Oil prices. At present the market really doesn’t like Commodities. Miners are no different. SOLG has announced a number of great news releases yet the share price does not react. After several debt/cash raises SXX looks top heavy and sp progress is likely to be slow now they are carrying many more shares in issue. Hummingbird Resources continues to under perform due to poor business performance but also compounded by a large II exiting. Capital Group sold 3% of their 12% holding, leaving a worrying 9%+ left. Fortunately, African Sustainable Fund picked up most of these shares but it’s these II swap transactions that keep prices depressed. Same has occurred on Amerisur Resources. Santander has been buying in while other II’s continue to reduce. A few weeks back Petra Diamond had a situation whereby Blackrock sold out a huge 15% holding and the price was walked down deliberately to get the last block trade away. After the II deals were completed, the price jumped by 50% from 17p to 26p. The reality is, getting elephants through small doors is 99% very damaging. II’s exit stocks for many reasons some often have nothing to do with the stocks performance. Many funds have rules for holding stocks which are of a certain value. When they fall below that level, they have to sell out. Some have a rotation policy. Some have a timeline/deadline rule. Retail investors often match share price performance to the company performance and are puzzled when they do not correlate. The truth is… sometime the market has to do its thing and that’s match buyers with sellers. A price needs to be agreed and then the trade completes. It’s that simple. Stocks that generate good news and deliver decent liquidity/volumes tend to outperform their sector even with heavy II sellers. If you have one of the latter, then you really need plenty of buyers to soak up that loose stock if you want to head higher. And there is no better tonic than ‘good news’ to bring in buyers.
Role on week 20… and some good news all round is much needed by the ShareHUB picks which in week 19 scraped back into the black. The Independent picks still looking good even after Trump’s tweetville. Don’t expect a China Trade solution anytime soon and don’t expect Trump to stop tweeting either. It’s a whole new ballgame out there for investors.
Mr Trump’s twitter account is beginning to resemble an old school US B-52 bomber dropping napalm like tweets into the market without much concern for the carnage that follows. Markets were enjoying a nice millpond period ahead of what should have been heathly China trade talks. But as mentioned a week or more ago, the Algo’s and Bots prefer volatility which is why ‘events’ like those seen over the last few days occur. The connection between politics and markets has been there for decades. But never before has a US president tweeted with clear intentions to move prices. A couple of weeks ago, Trump was at it again with OPEC. Prices were $75pb (Brent) and doing fine based on market metrics and then comes along a strawberry blonde B-52 style tweet and Oil was down to support levels in days. It’s becoming something that is fairly easy to predict. The difficulty is guessing when. All this does is incentivise short term trading rather then longer term investing. Investors are hopping around, fearful of the next killer tweet. Positions are closed going into weekends which is probably why there is a clear trend of late (particularly on commodities) of seeing prices rise strongly on a Friday afternoon or the opposite and collapsing. Whether driven higher by shorts closing or lower by longs closing or shorts opening, the market is beginning to resemble a 4 day trading week. It’s good for trading houses and brokers which all ‘need’ volume and activity to thrive. What the market (brokers) don’t like are the investors that buy and hold. Which is probably why many brokers now penalise such investors through higher fees and reward the more frequent gambling style traders with free trades when going over a certain volume of transactions. It’s not good and it’s creating an equity trading backdrop which feels like it is going no where fast despite good news flowing from many stocks. Frustrating for the ‘value-hunting’ investors who seek cheap stocks and expect them to rise once the good news flows, only to see them choked at every corner by short term traders. There’s no doubt about it, it’s tough out there at present and with US president ‘tweeting’ without restraint, it’s likely to continue for sometime.
Week 18 Review:
Not a good week for commodity focused stocks. That said, TheShareHUB picks underperformed due to dilutive funding rounds with SXX and some poor performances from HUM, AMER and CERP. The best recovery stock for the week was PDL which has recovered well after Blackrock’s hefty selling period ended but is still off by -40% for the year. The top picks need some good news to get back into positive ground and with the drilling season fast approaching, some much needed catalysts are not far away now. The Independent continues to perform well and the Guardian picks are still in the mix. Long way to go.