Category Archives: The In & Out

No risk, no fun! The African tiddlers!

Let’s face it: Investing in the stock market is a gamble. Ok… it may be a calculated gamble but the fact remains that nobody can predict with any certainty how things will pan out in the end. Fundamentalist, chartists, technicians, historians, speculators, traders, new technology (algorithms!), concentration or diversification? An endless list with so many questions that will remain unanswered… Even great investors such as Warren Buffet have committed major blunders but they are simply better at hiding their skeletons.

Surely, the answer is to develop an investment strategy that suits you best; i.e. that is compatible with your personality. On the whole, Pinkers likes combining fundamentals with charts – perhaps a bit ‘middle of the road’? A bit boring? Yes, couldn’t agree more! Ocassionally, however, a proper gamble can be huge fun… and then turn into despair! Pinkers is a great believer in Africa, the most underdeveloped continent with an undeniably enormous potential. Over the last couple of years, some British entrepreneurs have risen to the challenge and taken the plunge. There are now quite a few tiny mostly AIM listed companies active in Africa. Two areas spring to mind: travel and food. Africa is huge and getting from A to B is still a struggle. An even greater struggle is feeding the population. Pinkers likes Fastjet, a no-frills budget airline, co-founded by ‘Mr easyjet’ Stelios Haji-Ioannou and Agriterra, a rapidly growing London-listed pan-African agricultural company. Real tiddlers and highly volatile… certainly not for widows and orphans! You have been warned…

The two dreaded words…

Have regular readers of the business pages noticed? There are two innocuous enough sounding words cropping up all over the place. Yes, analysts do like their jargon… remember that terribly creative and terribly important sounding phrase ‘systemic risk’? Was it last year or the year before? Pinkers cannot remember. Anyway, that was a really clever one.

Well… Pinkers favours plain English and is delighted to report that this time the boys have come up with a more humble phrase: ‘Valuation concerns’. Back to the Oxford Dictionary pre-digital revolution!

Oddly enough, especially companies beginning with the first letter of the alphabet seem to be disproportionately affected: ARM, ASOS, Amazon… and so the list goes on! 100 times earnings? What’s the probs? Divis? Oh no, please don’t give us a share of the profit! That would smack of ex-growth! And, of course, it’s all about GROWTH. And we are not talking healthy levels but the new kids on the block will have to deliver at least 80-100% per annum. Anything less causes carnage and is being interpreted as a profit warning.

The most high-profile example right now is… yes… another ‘A’: Apple. Good old Carl (Icahn, that is!) is demanding a divi. The activist investor is causing a real stir, implying by his actions that Apple has developed into a ‘mature’ company… oh dear!!!

PS: The new phrase ‘valuation concerns’ particularly applies to the mainstream banking sector. Investors appear to assume that the banking model pre-Lehman will re-establish itself and with it throw off handsome dividends as it has done in the past. Sorry… but the environment has changed completely. Not only have smaller new competitors such as Virgin and Metro entered the fray but also completely new models of raising debt finance such as ‘peer-to-peer’ lending and ‘crowdfunding’ are expanding rapidly. Lloyds, in particular, trades at a a simply irrational valuation, especially with a potentially large toxic mortgage book acquired from Halifax. Crazy days! Furthermore, all this has now gained support from Mr Carney! Call is ‘moral hazard’… but Pinkers thinks good old Mervyn King will have the last laugh!

In

A modest UK recovery does seem to be under way.  So it does seem to be the right time to monitor equities that have underperformed due to their relative dependence on a domestic led economic revival.  Pinkers would target companies in the construction and support sector such as Balfour Beatty, Costain and Carillion.  All on low P/E’s and underwritten by very healthy dividends and reasonable dividend covers.  Furthermore, all the companies mentioned above are strong contenders for takeover and M&A – always a bonus!

Other sectors are virtually ‘bombed out’, especially mining & commodities.  Pinkers is a great fan of Glencore Xstrata, currently trading at a slight premium to peers but for the right reasons: a brilliant management team, holding large stakes in the company and therefore having a strong vested interest.

Favourite pick in the oil sector has to be Premier Oil: very cheap and sooner or later to be gobbled up by one of the majors which have largely given up on exploration.  Premier’s tie-up with Rockhopper could be either or: poison pill or bonus.  Without wishing to be sarcastic… but the reality is that with Kirchner’s health failing and little sympathy left either domestically nor globally, a bonus for Rockhopper and hence diminishing the geopolitcal risk.

However, a word of caution: no matter how cheap… right now is not the time to buy anything (perhaps with the exception of Premier Oil).  A healthy correction is overdue in order to prepare for the traditional Christmas rally.  So… folks… please hold your horses.

Out

Gold will continue its trend: downwards, that is.  Not that this is supported by fundamentals: The expectation of QE tapering should already be priced in and inflation in the UK is on the rise and already considerably higher than in the Eurozone, not to mention geopolitcal turmoil – wars and revolutions galore!  Surely, all this should offer strong support?  No, all that matters here is sentiment.  A decade of a strong bull run is now coming to an end and not even strong physical demand can make up for the selling of ETFs.  The party went on for too long and investors simply are getting bored… after all, no matter how brilliant the host… we all love a bit of change!  Pinkers forecast by far gloomier than analysts’s consensus of  average $1,250 per ounce for 2014. Pinkers target for mid 2014: $800.  Best advice: follow Soros – amongst other things, he’s particularly good on gold – and sticking to his guns!  As opposed to Mr Paulson… who has been calling the wrong shots on too many fronts for too long: bonds, gold etc… poor chap simply cannot make up his mind!

As for equities: S&P trading well above fair value – priced to perfection and completely ignoring looming fiscal battles and earnings.  And the S&P does still lead the way, no matter how fair valuations in other countries might be.  Right now, healthy to be equal weight in cash and shares.

Still Pinkers cannot resist mentioning the truly ludicrous: Ocado simply a joke and… most large-cap consumer stocks with hugely inflated ratings exposing the defensive nature the bull run this year.

And the biggest joke of all must be Royal Mail: wholly irrelevant with share allocations to the private investors who even after the 50% increase in the share price would hardly cover their weekly shopping bill at Aldi’s.