The “Bombed Out” portfolio rarely contains a household name, but this week sees the introduction of one, and arguably two.
In the dim and distant past – probably circa end of 2009 - I chose Dixons as my predicted worst blue-chip performer in one of those end-of-year space fillers new agencies like to put out when there is no real news about.
The reasoning behind my bearish view of Dixons was that in the smartphone era, people would just go to PC World or Curry’s to look at the products, use their smartphones to check what prices their online competitors were offering, and then go home and order the products online for around 30% less.
The fact that I kept meeting people at parties who got ink for their inkjet printer from PC World – more expensive than liquid gold, I should imagine – or bought giant LCD screens from Curry’s should have alerted me that not everyone thinks the same way I do.
Chances are the people who did think like me and who checked prices via their smartphone were doing so on a phone bought from Dixons anyway.
Suffice to say, after I attempted to put the kiss of death on Dixons, the shares rocketed in 2010 from 198p to 309p, and no matter how many times I referred to the retailer as “an extended warranties seller”, the stock kept riding high … until it crashed in 2012.
That would’ve been a great time to buy, as the stock doubled within a year, and the hope is that history might repeat itself this time round as the retailer picks itself up off the floor following a profit warning in late August.
READ Dixons Carphone plunges as it warns on profits with UK mobile phone business hit by weak demand
The shares are down 47% over the last year and 31% over the last three months, but over the last month the tide has turned, with the shares up 8.4% in the last five days alone.
Thanks a Carillion
Another reasonably well known name – another former FTSE 100 stock, in fact - entering the “Bombed Out but Bouncing Back” (BOBB) portfolio is Carillion PLC (LON:CLLN), the heavily indebted support services and engineering outfit.
As I seem to be in “confessions of a financial journalist” mode, I should point out that it was not so long ago that I was mocking Carillion’s rival, Balfour Beatty, for rejecting Carillion’s merger proposal in 2014.
Oh well, you can’t win ‘em all – or any of them, judging by this column and the performance of the BOBB portfolio thus far.
Maybe the board of Balfour Beatty knew something after all; it certainly knew first-hand about the dangers of becoming overextended and reliant on debt financing.
This year has been a disastrous one for Carillion, with the shares down 79% year-to-date, with most of the damage being done in July when the profit warning came out.
READ Carillion shares plunge as it warns on full year revenue and chief executive departs
The hedge funds made out like bandits when the profit warning finally landed, having previously shorted the shares – i.e. borrowed shares to sell in the hope of buying them back cheaper later.
The bad news has kept on coming with another profit warning last week and the admission that a massive fund-raising is on the cards to shore up the balance sheet.
Despite that, the shares have perked up over the last month. That could be because all of the bad news is now out there; it could be because the hedge funds have now lost interest in it; or it could be because Carillion is in play and might be snapped up by a wealthy competitor.
No one, especially stockbroker Jefferies, seems to think it is because the company’s self-help initiatives (City code for sacking lots of people) will turn the business around.
READ Jefferies believes it is it too late for Carillion “to say I’m sorry...and could we get it together again?”
Personally, I do not own a barge pole long enough to consider touching this one, but given my track record (alluded to above) it might be just as well that the BOBB portfolio’s constituents are determined by a stock screen, not human intervention.
The third stock joining the portfolio this week is Pantheon Resources Plc (LON:PANR), an energy company focused on the Gulf of Mexico, and nobody’s idea of a household name.
Hurricane season was not kind to the oil & gas junior, but recent news flow has been good.
On 25 September, a lease dispute over some acreage in Polk County covering the VOBM#1 and VOBM#2H well units has been settled.
Last week the company the drilling rig for VOBM#4 was expected to arrive on or around 24 October, having been delayed by tropical storm Harvey, while access roads to the VOBM#2H well site have been repaired and are now accessible to the equipment required for testing.
A workover rig is expected on site this week.
Throw in the successful fund-raising back in July and things are looking better for the company.
It becomes the second oil stock in the portfolio, joining Igas Energy, replacing Independent Oil & Gas, which was one of four stocks to get the heave-ho this week; the others were: Allied Minds, Rosslyn Data and Imagination Technologies.
Sales & purchases
- Allied Minds: Sold @ 132p each, generating £1,292, for a loss of £233
- Imagination Technologies: Sold @ 166p each, generating £1,462, for a loss of £57
- Independent Oil & Gas: Sold @ 14p each, generating £1,200, for a loss of £312
- Rosslyn: Sold @ 6.5p each, generating £3,105, for a loss of £30
Cash available to invest: £7,065
Three stocks to invest in = £2,353 each
- Carillion: Bought 4,700 shares @ 49.75p
- Dixons: Bought 1,200 @ 194.9p
- Pantheon: Bought 4,430 @ 52.75p
Here’s where we currently stand
Company
No. of shares
Total cost
Average price paid
Current bid price
Current value
Profit/ loss £
Profit/ loss %
Carillion
4,700
£2,353
50.07p
48.25p
£2,268
-£86
-3.6%
Dixons Carphone
1,200
£2,354
196.15p
195.1p
£2,341
-£13
-0.5%
IGAS Energy
2,300
£1,527
66.4p
66.25p
£1,524
-£4
-0.2%
Pantheon Resources
4,430
£2,352
53.09p
52.5p
£2,326
-£26
-1.1%
- Cash: £6
- Total value of original £10k portfolio: £8,464
- Profit/loss on closed trades and dividends: -£1,408
- Unrealised profit on current holdings: -£128
- Total profit/loss: -£1,408
I am sorry to report that the rebooted BOBB portfolio seems to be losing money like the first one did, only more slowly. One or two runaway winners could change that, but at present the virtual portfolio continues to demonstrate the folly of trading too frequently in stocks that are bought purely because they have been going up.