One thing that had not occurred to me when I started this momentum investing experiment is: what happens when there is a major market correction?
Last week, as the world and his wife worried about how some deranged, volatile leader would react to his opposite number’s posturing in the USA/North Korea dispute (notice I am not specifying which leader is the deranged one), the FTSE 100 fell from around 7,550 to 7,300 in the space of three days.
Would there actually be any stocks displaying any upward momentum when I did my stock screen this week?
Surprisingly, there were some; in fact, there were more this week than when we ran the screen last week, though that may partly be explained by the market’s recovery over the last couple of days.
All of which means we have five candidates to add to the portfolio, which is just as well, because the two stocks that were in the portfolio have exited it this week – one at a startling profit and the other at a small profit.
READ Speculative buying in Pebble Beach could get recovery stocks portfolio off to fast restart
It looks like the headline on last week’s Stockpot article was remarkably prescient, as Pebble Beach Systems Group PLC (LON:PEB) shot up this week on zero news flow.
The mid-market price of the shares on 7 August was 2.95p and now it is 4.125p, which is a very handy 40% rise. Unfortunately, the bombed out portfolio does not use the mid-market price, but even so, we bought at 3p and sold at 4p, which after factoring in dealing costs garnered a very decent £632 profit on a £2,000 investment in just over a week.
As I mentioned in last week’s column, it only takes one big winner to offset the flops, and Pebble Beach was a big winner, which is all very satisfying, but it would be better still if we knew why it had gone up so much.
The company is due to publish the results of a strategic review at some point and I would not be surprised if the verdict was to put the company up for sale.
International Personal Finance PLC (LON:IPF) was also jettisoned from the “Bombed Out” virtual portfolio this week, at a more modest £41 profit on a £2,000 investment over a three week period.
The stock had a good little run following its half-year report on 26 July but the market seems to have sucked the juice out of that particular tit-bit, and the shares have levelled out in the last 10 days or so.
Next up on the Generation Game conveyor belt
The sales of Pebble Beach and IPF boosted the cash position to £10,175, which means the £10k virtual portfolio is in profit. Well, if Huddersfield can top the Premier League …
We’ve put an upper limit of £2,000 per investment on the portfolio, and have a lower level of £1,000, so with five candidates we can go the “full Monty” on all of them.
We’ll start with the stock that has the lowest percentage spread – the difference between the bid price (at which we sell) and the offer price (at which we buy).
The reboot of the “Bombed Out” portfolio has only been going three weeks and this stock has been in, out and is now back in again.
It’s a cyber-security specialist that has come unstuck with its ‘buy and build’ strategy. There has been a management clear-out this year, and the stock has been steadily rising since the end of April, presumably on hopes that the new management’s revival strategy will work.
Bought 980 shares @ 202.25p
The marketing services company is down 43% over the last year but up 26% over the last week following a trading statement on Thursday of last week that revealed full-year results are expected to be at the top end of market expectations.
The update came as a relief as it was a trading statement back in January of this year that started the stock on its precipitous decline.
Bought 2,850 shares at 69.5p
Directa Plus (LON:DCTA)
This is a stock we have covered closely at Proactive Investors; it is one of the largest producers and suppliers worldwide of graphene-based products for use in consumer and industrial products.
READ Downhill racer: Graphene-based products group Directa Plus on a learning curve, but looking for a jump
The stock has more than halved in the last year but has picked up since Cantor Fitzgerald pointed out on 7 August that it is “profoundly” undervalued.
Looking at the ratio of enterprise value (essentially market capitalisation adjusted for debt or cash) to sales, the stock was trading at a third of the value of its graphene peers and other similar early stage companies, at 2.8, prior to Cantor's note.
“This is heavily unjustified given demonstrable growing momentum in the business,” the broker maintained.
The stock is not especially liquid, which may account for why the shares drifted from last year’s flotation price of 75p to the mid-thirties before picking up sharply in the wake of Cantor’s note to around 60p. The recovery has been so dramatic, I worry we might have missed the boat.
Bought 3,250 shares @ 61p
Rosslyn Data Technologies PLC (LON:RDT)
Another Proactive favourite, the data analytics software provider should be a sexy stock in this era of Big Data, but apart from a brief rally in April when it snapped up rival Integritie, the stock has drifted steadily south.
That was until the end of July when it bagged three contracts worth more than £3.1mln in aggregate over a three-year period.
To put that into context, in its most recent full-year results, the company’s revenue clocked in at £3.9mln, so the orders are significant ones and seem to have alerted the market to the company’s potential.
The shares are up 21% over the last month.
Bought 34,500 shares at 5.75p
Kefi Minerals PLC (LON:KEFI)
The lifting of the state of emergency in Ethiopia this week means KEFI can get cracking on constructing the Tulu Kapi gold mine.
It’s a big project, but so are the rewards, and with the company having recently secured a financing package for the construction of the mine, sentiment towards the stock has improved markedly. The rise in the gold price won’t have hurt, either.
READ Finance package for Tulu Kapi burnishes KEFI Minerals' appeal
To be honest, as much as I like the long-term prospects of the company and Tulu Kapi, this stock does not strike me as a trading play but “computer says yes”, so in into the portfolio it goes.
Bought 35,200 shares at 5.65p
So, that’s what we bought, and thanks to dealing costs and the market makers’ spreads, we are no longer in profit anymore, but let’s hope one of those proves to be a nice little earner.
Here’s where we currently stand.
Company
No. of shares
Total cost
Average price paid
Current bid price
Current value
Profit/ loss £
Profit/ loss %
Directa Plus
3,250
£1,998
61.46p
61p
£1,983
-£15
-0.8%
Kefi Minerals
35,200
£2,004
5.69p
5.4p
£1,901
-£103
-5.1%
980
£1,997
203.78p
201.25p
£1,972
-£25
-1.2%
Rosslyn Data
34,500
£1,999
5.79p
5.5p
£1,898
-£101
-5.1%
2,850
£1,996
70.03p
68.75p
£1,959
-£36
-1.8%
- Cash: £182
- Total value of original £10k portfolio: £9,895
- Profit/loss on closed trades and dividends: £175
- Unrealised profit on current holdings: -£280
- Total profit/loss: -£105
It’s irksome that we’ve bought back into NCC at a higher price than the one at which we sold. Buy high, sell low is no way to make money in the stock market.