Sell in May?

    21 May 2016

    ‘Sell in May and go away,’ says an old stock-market maxim. Despite mixed historical evidence, that advice is worth pondering this year in the light of the bull run of the last few months — particularly the Dow Jones index of leading US stocks, which is close to its five-year high. Brexit and US electoral uncertainties add to the fear that a confluence of factors could seriously affect share performance over the next six months. So selling now — and, if we follow the full adage, not buying again until Halloween — might be a prudent choice.

    But before doing so, let’s reflect on some contrarian evidence. The seemingly inexorable slide to zero interest rates suggests that politicians in Japan, US and Europe will feel that ‘helicopter money’ is the only device left to inject life back into their dying economies —despite Mario Draghi’s recent denial of such an idea. Some of this ‘new’ money must inevitably find its way into financial assets, as has happened since we were introduced to quantitative easing in the bad old days of 2008–2009. So there’s one macro reason why good shares will go on rising.

    And in any event, your veteran investor has a penchant for stock-picking, whatever the big picture might look like. So before we all decide to switch off our screens for the summer, it might be worth checking the performance of some of the stocks I have highlighted in previous issues of Spectator Money.

    Bringing lesser-known shares to the attention of others is a fraught business at the best of times. The wise stock picker never defines his timeframe too precisely, so that when things go wrong in the short term he can always deploy the comforting phrase ‘for the long haul’. One or two stocks highlighted here over the past six months must now be seen as longer-term investments!

    Nonetheless we’ve had some successes. Last October, under the headline ‘Catching falling knives’, I recommended four stocks that seemed to have turned a corner: RedT, Goldplat, D.P. Poland and Blur Group. That portfolio is up by 23 per cent, despite Blur going down by two thirds. In tipping the latter, I tempted fate by quoting Warren Buffett, who always avoids stocks he does not understand: sadly I failed to follow the Sage of Omaha’s advice.

    In March 2016 (‘Looking beyond today’s turmoil’) we had seven names to look at. Together they have gained 17 per cent. Looking inside the averaged perform-ance, it’s striking that some of the real winners have been connected with battery technology and the move from fossil fuels to renewables. RedT (+55 per cent), Flowgroup (+10 per cent) APC Technology (+25 per cent) are cases in point, while Orocobre (a lithium producer) is up 55 per cent.

    Then there’s ITM, in which I hold shares and which has lost 50 per cent since picked in November as a renewable energy play, given the possibility that cheap fracked energy won’t happen in the UK any time soon. I take the risk of further egg on face by returning to this one below — along with three more ideas for the brave who decide to defy both uncertainty and cliché, and buy in May. (Prices as at 9 May.)




    (Share price 13.75p; Market cap £29m)
    Since I mentioned this company at 27p it has fallen as low as 11.5p, but now shows signs of recovery. And so it should. Its twin businesses of hydrogen fuel-cells and large ‘power to gas’ battery storage are poised for explosive growth. Lately comes news of a partnership with BOC, which is about to roll out hydrogen refuelling stations in the UK using ITM technology. A £2.5 million financing at 15p per share should allow ITM to survive while awaiting BOC’s hydrogen stations. The first mass-produced hydrogen-powered car, Toyota’s Mirai, is selling well in California and Germany — and several models are undergoing UK trials, so perhaps the BOC deal marks the start of the revolution.



    Anglo Pacific

    (73.5p; £127m)
    I’m encouraged to think that the worst is over for the mining sector. This certainly looks the case for the only mining royalty company quoted in London. Its two major coking and thermal coal producing assets in Australia have come on stream, hence royalty income rose significantly last year despite low commodity prices. Other royalty streams in iron ore, uranium and vanadium are about to contribute. Other than uranium, all commodities have recovered from their lows, supporting Anglo’s profit optimism for 2016 and 2017. The balance sheet is reasonably strong and a dividend of at least 6p per share would offer an acceptable 8 per cent yield while we await better times.




    (65p; £38m)
    This is an exciting high-risk venture in potentially a £10 billion global market. Angle has developed a blood test, Parsortix, that can identify rare cells such as those associated with cancers. Successful tests have been conducted with Bart’s (for prostate cancer), University of Southern California (breast cancer) and Cancer Research UK (lung cancer). Larger tests and approvals lie ahead, but the process may be quicker than usual, given that such an advance could render tissue biopsies largely redundant. Question is, how long will the money last? With about £4 million in hand, perhaps it’s another year before joint venture, merger or another financing must be considered.



    Henry Boot

    (£1.96; £258m)
    This family-controlled housebuilding, development and civil-engineering group used to have most of its projects in the north of England, but now operates from Aberdeen to Devon. It has had four years of sustained growth and is predicting more of the same. A large land bank and development properties such as the 27-acre former Terry’s chocolate factory site in York give cause for optimism. One steady earner is a contract to keep the A69 between Newcastle and Carlisle in good repair. With low gearing (18 per cent) and steadily increasing dividends and net asset value, this conservatively run company is one to tuck away.