Weekly Newsletter No. 16 21/07/2017

Good Afternoon,

 

The UK

This week the FTSE 100 has been strong and is now trading around 7450, climbing back towards its all-time closing high of 7547. This is mainly due to a drop in the value of GBP and commodity stock sentiment being bolstered by promising GDP figures coming out of China.

 

FX Markets

Inflation has unexpectedly dropped off over the last month. As you will have noticed from my weekly commentary oil has been moving lower. This in turn has offset a rise in food prices according to the latest figures from the Office for National Statistics. The consumer price index was 2.6 per cent higher in June; analysts were expecting inflation to remain at a four-year high of 2.9 per cent as it was in May’s figures. Sterling fell 0.7 per cent against the dollar on the news. Inflation has been rising for the past year, due in part to the effect of a previous fall in oil prices dropping out of the figures, as well as the decline in the value of the pound after last Junes Brexit vote.

 

Oil

Brent crude oil rose above $50 per barrel for the first time since early June on Thursday, adding to gains made the previous session when falling U.S. oil inventories lifted the market. U.S. crude inventories dropped by 4.7 million barrels in the week to July 14, according to the Energy Information Administration, more than analysts’ forecast of a 3.2-million-barrel decrease.

 

oil

 

Since writing a small piece about the potential for 20% upside in oil it has risen fairly well (above is a chart detailing the last month for WTI crude). I am still bullish on this sector and BP would be my selection at the moment.

 

 

Company specific new

The Co-op Bank

You may be aware that following a prolonged period of speculation the Co-op Bank has announced a re-organisation to allow it to meet the Bank of England’s capital requirements.  This will involve either the repayment of your Co-op 11% Stock 2023 or its replacement with shares in Co-op Bank, which we do not expect to be listed for a considerable period.  The cash payment will be a maximum of 45p per £1 of stock; the stock has been trading at just over 40p for a considerable period.

 

As I am able to sell at around 48p at the present time, which is as high as the stock has traded since the announcement was made and 3p more than the offer, I would suggest that anyone holding the Co-op 11% 2023 sells in the market prior to the scheme proceeding. 

I recommend you sell these now if you hold them!

 

coop

 

Share analysis

 

Last week I wrote about investor phycology and the way it affects people’s ability to make profit. This week I will outline the key investor philosophies, everyone follows one even if they don’t know it themselves.

 

What is ‘Investment Philosophy?’

Investment philosophy is a set of guiding principles that inform and shape an individual’s investment decision-making process. Examples of investment philosophies, or styles, include:

Value Investing: Seeking relatively undervalued stocks and believing they will eventually produce strong returns.

Fundamental investing: Identifying companies with strong earnings prospects.

Growth Investing: Buying into companies that have promising emerging products or services that hold promising growth potential.

Socially-Responsible Investing: Looking for companies that adhere to certain set of moral and/or ethical business standards.

Technical Investing: Examining past market data to look for hallmark visual patterns in trading activity to make buy and sell decisions.

Contrarian Investing: Making investment decisions in direct opposition to the market majority (selling when others are buying).

Prolific investment manager from around the world praise certain methods and discredit others. It’s all about what works for you, with differing situations and differing time horizons not everyone will agree on the same method.

I personally tend to use a mixture for my own trading;

I am alerted to a potential trade when it becomes a contrarian investment opportunity. *Observing a lot of selling/abnormal price movement*

I then look at the fundamentals of the company to make sure that if the profit takes longer to materialise than planned at least I own a company with a strong balance sheet *check for potential problems*

Lastly I look at the charts to gage recent highs, lows and indicators. I look for support levels (which if broken tell me to sell) and also exit points. *plan the trade to limit any potential for loss*

This works for me due to my short time horizon, I wouldn’t trade like this in my pension or a portfolio set up for income. I merely try and capture profit from short term mispricing of shares.

Recommendations

 

 

ITV

 

Now appears the right moment to buy ITV as advertising revenue starts to improve and June should have marked the low point as year-on-year comparisons get easier. Morgan Stanley announced three weeks ago it was upgrading ITV, giving them a buy rating and 230p target. Last Friday Goldman Sachs reiterated its ‘buy’ rating was maintained on ITV’s shares — which are also liked for their M&A potential — target price set at 228p. ITV have a dividend yield of 3.6% and a consistent history or paying special dividends ranging between 5 & 10 pence per share (altogether a yield of around 6.5%). ITV have also just announced the imminent arrival of Carolyn McCall. The current EasyJet CEO will be taking over the reins starting in January 2018.

 

JustEat

JustEat, the takeaway order business has performed well since listing just over three years ago. It is expected to report profits in excess of £500m for the current year, up from £375m in 2016.  The company is currently attempting to take over its smaller rival Hungryhouse in the UK which is being investigated by the competition authorities. However, the two companies’ combined would only control 27% of the market, with JustEat currently controlling 25%.

 

BB Healthcare Trust BB Healthcare Trust was launched in December 2016 and offers investors access to a concentrated portfolio of healthcare equities with an unconstrained mandate and a stated objective of delivering double-digit total returns with a 3.5% yield. Since inception to date, the net asset value is up 17% with a total shareholder return of 20% versus the MSCI World Healthcare index up 14%.

Enjoy your weekend, thanks for taking the time to read my newsletter!

 

Karl Townsend ACSI

Stockbroker

For and on behalf of

Arnold Stansby & Co. Limited

Telephone: 0161 832 8554   Fax: 0161 834 7710

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A word about some risks: Investing in the bond market is subject to certain risks that fixed income securities will decline in value because of changes in interest rates, and the risk that the manager’s investment decisions might not produce the desired results. Bonds with longer durations tend to be more sensitive and more volatile than securities with shorter durations; bond prices generally fall as interest rates rise. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Derivatives may involve certain costs and risks such as liquidity, interest rates, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Diversification does not ensure against loss.

There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors, and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.

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