Every so often a stock screen throws up a stock that makes you wonder, where did I put that barge pole?
The idea behind “mechanical investment” methods – where stocks are selected according to a fixed formula – is to take the subjectivity out of the process.
In other words, you have to hold your nose and take the plunge when the stock filter throws up – I use the term advisedly – a share purchase you would not consider of your own free will.
WATCH: Plenty of 'bombing out' but precious little 'bouncing back' in recovery stocks portfolio
I apologise to the new management team that is trying to repair the reputation of the scandal magnet formerly known as Quindell, but Watchstone Group is one of those stocks that gets the old investment Geiger counter parping away like a drunken reveller after a night on the curry.
You can read all about the Watchstone/Quindell story elsewhere on Proactive Investors but perhaps the most pertinent update is the most recent one, in which it reported a narrowing in first-half losses as it continues to reduce its cost base and simplify its structure following the troubles seen in its former guise.
So, maybe the stock screen is right and my “Spidey-sense” is wrong. The recent share price performance is very encouraging, with the stock up by a third over the last five days, though over the last year the shares are down by a third – making it a perfect candidate for the “Bombed Out but Bouncing Back” portfolio.
It is one of four new stocks added to our money pit of a portfolio, but before we cover the other three, we have to bid farewell to five others, including a “Bombed Out” rarity – a stock that made us (virtual) money.
Shown the exit
ANGLE PLC (LON:AGL): Sold 2,840 shares @ 40p to raise £1,121 for a loss of £58
Allied Minds PLC (LON:ALM): Sold 650 shares @ 165p to raise £1,058 for a loss of £114
Atlantis Resources Ltd (LON:ARL ): Sold 2,660 shares @ 40p to raise £1,049 for a loss of £123
NAHL Group plc (LON:NAH): Sold 760 shares @ 147.75p to raise £1,108 for a loss of £62
Pantheon Resources Plc (LON:PANR); Sold 4,430 shares at 59.5p to raise £2,620 for a profit of £268
Selling that lot gave us £6,963 to reinvest, and here is where it went.
Lonmin PLC (LON:LMI): Bought 2,050 shares at 84.5p each
MXC Capital PLC (LON:MXCP): Bought 104,500 shares at 1.65p
San Leon Energy PLC (LON:SLE): Bought 6,650 shares at 26p
Watchstone Group PLC (LON:WTG): Bought 1,410 shares at 121.75p
These transactions went through yesterday afternoon and as luck would have it, one of the stocks we sold – Atlantis Resources – is up almost 5% today.
One other stock, DX Group, is kept over from the previous week.
The new arrivals
Platinum producer Lonmin has seen its shares halve over the last year but it has been on a good run lately, though Liberum reckons that will be difficult to sustain.
“Lonmin have had a good three quarters with net cash position improving following a disastrous Q1'17. They expect to beat the top of sales guidance and coming in line with costs and capex,” the broker noted.
“The PGM [platinum group metals] Rand basket price appears to be back on an upward trend and doing just enough to combat cost inflation; however, cash has been boosted by a draw-down of work in progress, a trick that can't be repeated. Unless they can maintain a strong operational performance (which they've struggled to in the past), the company will be cash destructive once again,” the broker added, as it reiterated a price target of 15p.
Seeing as we bought at 84.5p each, that price target is worrying …
MXC is a merchant bank specialising in investing in technology companies. You don’t see the term “merchant bank” much, these days, as it has been supplanted by the term “investment bank”, but the key difference between the two types of bank, if one wants to be cynical about it (and I do; I do) is that merchant banks are there to help their clients make money whereas investment banks are there primarily to make money for themselves.
Among the companies MXC has stakes in are quoted companies Tax Systems Plc (LON:TAX), CORETX Holdings PLC (LON:COR), Castleton Technology PLC (LON:CTP) and Adept4 PLC (LON:AD4) plus some unlisted companies, including the splendidly named Jobbio.
If the stock does well in the Bombed Out portfolio it might be worth looking a bit more closely at MGC’s investments.
San Leon Energy’s shares were suspended from trading in July and had their listing restored in September, since when the shares have trended up from 21p to 25p.
The main driver has been the possibility of an offer from China Great United Petroleum. Great China has been doing its due diligence since June but there have been some delays because the Chinese company is in talks to bring in a large engineering, procurement and construction (EPC) partner to “add value in midstream projects on OML 18” – the onshore oil and gas block in Nigeria in which San Leon has an indirect interest.
Something may be finally afoot on the China Great front; let’s hope so.
Here’s where we currently stand
Company
No. of shares
Total cost
Average price paid
Current bid price
Current value
Profit/ loss £
Profit/ loss %
DX
11,095
£1,180
10.64p
11.25p
£1,248
£68
5.8%
2,050
£1,747
85.23p
83p
£1,702
-£46
-2.6%
MXC Capital
104,500
£1,739
1.66p
1.6p
£1,672
-£67
-3.9%
San Leon
6,650
£1,744
26.23p
25p
£1,663
-£81
-4.7%
Watchstone Group
1,410
£1,732
122.81p
117.25p
£1,653
-£78
-4.5%
- Cash: £0
- Total value of original £10k portfolio: £8,142
- Profit/loss on closed trades and dividends: -£1,857
- Unrealised profit/loss on current holdings: -£248
- Total profit/loss: -£1,857