I have two items on my SIF portfolio agenda this week. First, I fear I may have to invoke my rarely-used stop-loss rule on floor covering distributor Headlam (LON:HEAD) – although this small cap hasn’t issued a profit warning, its shares have delivered a sorry performance so far this year.
The second item is a FTSE 100 bank that’s new to my screening results as a possible buy. Asia-focused Standard Chartered (LON:STAN) surprised the market with a strong set of numbers recently, but still looks cheap to me against a global backdrop of rising interest rates. I’m interested to learn more.
Headlam (LON:HEAD)
As a brief reminder, in 2020 I introduced a stop-loss rule to the portfolio, requiring me to sell stocks after they’d dropped by 25%. No explanation is required – the rule is simply to sell following a 25% share price fall.
SIF’s Headlam position has been flirting with the 25% threshold for weeks, but has now made a decisive move lower.
The portfolio’s position is showing a 35% drawdown at the time of writing, making it the portfolio’s biggest loser:
Finsbury Food (LON:FIF) is also on the cusp of triggering a stop-loss sale. If the current market sell-off continues, I can see further possible casualties, too.
Why is Headlam falling? This business has not issued a trading update since its final results on 9 March, which Paul covered here.
My view on this business is positive and the stock looks attractively valued to me. But rightly or wrongly, the market seems to be pricing in a UK slowdown, perhaps paired with pressures from cost inflation and supply chain problems.
Even if the UK economy avoids a recession, I think it’s easy to imagine a sharp reduction in home improvement spending this year, now that holiday travel is fully reopened.
There’s always a risk that company-specific issues will emerge, too. I don’t think this is likely, based on Headlam’s track record. But with a boardroom reshuffle underway, it’s not impossible either.
My decision: I will sell Headlam from SIF and my personal holdings this week. Although an AGM update is due on 19 May, I’ve decided not to wait any longer.
