Life is like riding a bicycle.

Week 20 of 2013

More bumper gains for the large caps and more records smashed as the markets soar higher and higher. The sell in May mantra has clearly been out of touch in 2013 as the major indices continue to pile on the gains. Growth stories dominated the week as BoE cited better times ahead. The French were not as bullish as they dipped their toes below the recession level for a second time.

It’s still not pretty out there and the major debt issues that have plagued the markets for the last 4 years are still very much evident. But in true market fashion – lets party anyway? Things can only get better right? Meanwhile – the resource sector continues to get battered as if in a different reality time zone. One where all of the above debt issues are all very relevant and real. A major concern apparently?

One has to assume as growth rates pick up in the future so will the demand for resource/commodities. If the markets are supposed to be forward looking – then you’d expect some reasoned rallying across the sector by now. So which is it? Is optimism over growth driving the large caps or is the free QE3 cash just getting invested in apparent low risk sectors only?

The Dow closed week 20 up 235pts at 15354. The FTSE 100 added 98pts to close the week at 6723. That’s over 300pts gained on the FTSE for the month of May.

A virtual portfolio has been set up using the 2012 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 2013 has been included to help monitor/compare against. A pi ‘polled’ top picks list (from LSE bulletin boards) has been included this year.

Week 20 stock picks summary:

It’s pretty much as you were. Large caps booming ahead and small caps looking like the kid picked last for a game of park football.

Poor management decisions from the BOD’s at Antrim account for almost 76% of thesharehub’s hotlist decline. No high impact exploration or failed appraisals can be blamed. Just an inept management team who have undelivered for the last 3 years now yet all of those involved continue to take handsome salaries. Antrim really ought to be put up for sale now to realise the best shareholder value. At double the 8p per share (16p offer) a buyer could gain 3mmboe in reserves, 1000bopd (potentially rising to 1500bopd levels after workovers) huge tax credit breaks, licence block interest in hot demand areas like Ireland and Tanzania and debt free (apart from oil swap deal). Not bad for just £36mln. Of course – it would mean that the BoD’s are out of a job and i’m not sure a new job would be easy to find after their performances. So perhaps a sale of the business is not aligned with director interests at this time? Or ever in the future? It’s probably time for the largest shareholder (18% interest) to make some changes.

Elsewhere across the stock picks – Gulf Keystone stands out as a stock that looks ripe for the speculation rumour mill. The Court Case could finally end soon with a judgement expected as early as June. News emerged over the weekend that ‘Blackrobe’ the hedge fund 3rd party litigation player has decided to ‘fold’ and dissolve the business due to a lack of funding. Mmm – timing certainly looks a bit apt. Should GKP win the CC and wish to counter sue on some matters – Blackrobe and those behind the business will in theory be safe from the clutches of the law. Could this be a hint that the panto like Court case is about to end?

The independent continues to soar and whilst it is clear QE3 is flushing its way through the larger caps, I still wonder why on earth Thomas Cook has almost 3 bagged. The travel industry is changing fast and companies like Thomas Cook have been slow to change with it. As poor old Nokia discovered, it’s the innovators that pick up the mantle and run with it leaving the previous sector leaders looking like great grandma’s. Plenty of wisdom but just not able enough to compete anymore.

But in a market that is disconnected from reality – reasoned debate is becoming hard to find.

Current standings / Week 20 Results

1. The Independent 2013 +39.55% (weekly gain of 6.82%)
2. TheShareHub’s 2013 B-List +10.66% (weekly gain of 4.74%)
3. The LSE BB List 2013 -10.76% (weekly loss of 2.78%)
4. TheShareHub’s 2013 Hotlist -11.13% (weekly gain of 0.01%)

Click on Portfolio image to enlarge

Week 19 of 2013

Not much to report – the markets continue to break records, setting new highs on S&P and DOW while the FTSE still has some room left to attempt its own record breaking run at 7000 level. Most would not argue with the latter achieving that milestone as the markets continue to see QE cash sloshing in with no immediate signs of that disappearing.

The question for resource focussed investors is when will the sector bottom out and see some interest. It’s like being invited to the QE3 party only to find you’ve missed the fizzy stuff and are left with the flat warm beer.

M&Q and transformational discoveries are the two hero’s that can save the sector. With many commodity stocks trading at levels last seen when OIL was priced at $35 per barrel – one has to expect the bigger fish to seize the valuation gap opportunity as OIL shows little signs of dropping significantly below $90.

The Dow closed week 19 up 146pts at 15119. The FTSE 100 added 103pts to close the week at 6625. That’s the second week on the trot that the FTSE has put in a 100 point + weekly gain.

A virtual portfolio has been set up using the 2012 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 2013 has been included to help monitor/compare against. A pi ‘polled’ top picks list (from LSE bulletin boards) has been included this year.

Week 19 stock picks summary:

The trend continues to play out whereby larger cap lower risk stocks out perform the smaller cap higher risk stocks. The resource sector has been battered for the last 3 years with some minor bounces along the way. But nothing major has been delivered since the late rally of 2010.

Major discoveries or those ‘transformational’ results have been lacking. And M&A activity unusually quiet considering the discounted prices. COVE was the highlight last year after the company finally succumbed to a bid which saw it’s sp rise from 90p to test 270p in a matter of weeks/months as a bidding war ensued. Shell were the major that lost out on that one – but the fact that they were bidding reveals quite a bit. Big oil is on the look out for bargains. Why wouldn’t they? Africa is hot in demand and with companies like Bowleven notching up further transformational results in 2013 to add to tbose in previous years – a bid surely cannot be far away?

The destiny of Kurdistan focussed stocks took a big step forwards to commercialisation after the KRG passed an OIL Law within its own constitution to export oil without Baghdad’s approval. This legal paper work appears to be the precursor to an inevitable major business deal with Turkey. A deadline of circa July appears to have been tabled suggesting that Baghdad has 90 days at best to find a compromise or deal that suits themselves but mostly the Kurds. The door is still open but relations are growing apart as the KRG begins a new era of international exports. Hence – it is not surprising to see Turkish founded Genel in demand when the rest of the sector is on ignore. Genel’s sp has risen from 600p to test 920p last week. That said – the disconnect between Genel and another Kurdistan focussed stock ‘GKP” couldn’t be bigger.

Whilst GKP clearly has an important Court hearing judgement coming up – the market appears to be rather heavy handed with its discount factors. Should the court ruling go in GKP’s favour, the company will have clear title to all assets and be free from any self inflicted news embargo’s. Furthermore, with the so at 2010 lows, the company would effectively be coming out of the traps like a ‘hare’ at a dog track.

The court hearing is expected around June time and one would expect the market to adjust the risk vs reward ratio to fairer levels as that date approaches. With the stock trading at 190′s on average for much of 2013, the current price of 130p presents a 50% upside for any new investor.

With the markets in current dual trading mode – there is no contest amongst the smaller caps and larger caps. The latter are clear winners. That said – there is no escaping the performance by the Independent which has delivered some major gains over the last 2 years. Great performance.

Current standings / Week 19 Results

1. The Independent 2013 +32.73% (weekly gain of 2.45%)
2. TheShareHub’s 2013 B-List +5.92% (weekly gain of 2.84%)
3. The LSE BB List 2013 -8.02% (weekly loss of 1.41%)
4. TheShareHub’s 2013 Hotlist -11.14% (weekly loss of 2.09%)

Click on Portfolio image to enlarge

Week 18 of 2013

More of the same in week 18. The larger cap indices such as DOW, FTSE and S&P all performed well with the US markets continuing to break the history books with every trading day completed. You really have to pinch yourself when you see the S&P 500 at 1600+ and the DOW over 15000. The Markets waited patiently for the ECB and FED to deliver their policy decisions and both delivered exactly what the markets wanted. The rate reduction from the ECB really does sum up the current situation. Growth is virtually non existent and whilst the banks seem to be doing ok (major profits are back again) with washing the money through the system – the man and women on the street have yet to see any benefits. Until they do – the recovery will still be a long way off.

Earnings season for Q1 numbers is almost over – which will bring with it a little window of non news on a company specific basis for many stocks. That can often result in a drop of interest which is normally exploited by some market force. The sell in May mantra and don’t come back until St Ledgers day, has proven to be true (partly) but dips have been short lived and last year was a good example of the power that stimulus measures can have upon summer trading. This year may be no different but ask anyone if they would prefer a little pullback to cheaper levels – and most would say… yes please.

As for commodities and the resource sector – it’s beginning to look too cheap now. Whilst there’s still no need for the QE3 flooded traders to stretch themselves into the higher risk sectors – some are and will be building positions.

When will commodities bounce back? Well, if China can deliver some nice numbers in the future, then enthusiasm will begin to grow again. For the moment, M&A and some transformational discoveries wouldn’t go a miss to get the flames firing again.

The Dow closed week 18 up 60pts at 14973. The FTSE 100 added 104pts to close the week at 6522.

A virtual portfolio has been set up using the 2012 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 2013 has been included to help monitor/compare against. A pi ‘polled’ top picks list (from LSE bulletin boards) has been included this year.

Week 18 stock picks summary:

Pretty much a re-run of last week as the larger caps continue to plough on higher while the smaller cap resource stocks drop lower. I don’t think i’ve eve seen such a different dynamic between sectors for a decade or so. Even when the larger caps are doing well, the small caps normally get to join in on the party even if it’s just minor gains. In most cases post 2009, it was the smaller caps that were the more lively. Always moving in more volatile patterns with greater swings between gains and losses notched up along the way. But recent action reflects more of a ‘squeeze’ on investors/traders some over leveraged and others over invested. As each investor gets forced to close positions or move cash else where to safety – the trend simply continues. That said – a reshuffle or review of ones portfolio/investments is never a bad thing at all and should be encouraged in these more volatile times. Unfortunately the stock picks for 2013 cannot be shuffled around as they are fixed for 12 months and figures represented based on not being traded.

There are many cheap stocks out there now in the resource sector – some look ridiculously cheap. Gulf Keystone is a prime example. Trading at 134p, the stock should be set for a major rerating once a court judgment is passed – expected as early as June but could be as late as July. To more seasonal investors (been around the block) you know when a stock is getting ready to break from a downtrend and head north – when you see and read plenty of ‘basher’ comments on bulletin boards. These types of posters like to spread doom and gloom and they tend to work hardest when they are losing the battle.

GKP is certainly not without risk, but at 134p, there’s a 1 bagger to 260p+ waiting should the court case go in their favour and that’s just for starters. With clean title on assets, many would expect a sale shortly after. Last year the stock hit 450p+ based on rumours of Exxon making a bid.

In this market where the resource sector is very much unloved – GKP potentially offers investors ‘transformational’ news without the drill bit but with the wig and hammer.

Also worth noting is that at the end of May, GKP are at the Kurdistan STEAM conference which could in itself deliver some much needed clarity on Turkish deals and political progress.

The Independent top picks are streets ahead with a 30% gain for 2013 already. Compare this to the small cap focused LSE and Hotlist picks and the disconnect is clear for all to see.

The gap will close but at present it’s difficult to call just when. But one does get the feeling that the disconnect is beginning to look a tad overdone.

Current standings / Week 18 Results

1. The Independent 2013 +30.28% (weekly gain of 0.65%)
2. TheShareHub’s 2013 B-List +3.08% (weekly loss of 0.63%)
3. The LSE BB List 2013 -6.61% (weekly gain of 1.10%)
4. TheShareHub’s 2013 Hotlist -9.05% (weekly loss of 0.89%)

Click on Portfolio image to enlarge