Small Cap Value Report (29 Apr 2015) - BMK, THT, SVCA, RGD
Good morning! Well no profit warnings for me this morning, so far, so that's a good start. Ramridge posted an interesting comment after yesterday's report, saying that he'd crunched the numbers, and according to an EY report, 2014 was a record year for profit warnings, and the rate is about 15% - so if you have a portfolio of 50 shares (roughly what I have) then you should expect 7-8 profit warnings per year.
If you invest more in small caps, then the profit warning rate will probably be higher, because smaller companies usually have less earnings visibility, and can be heavily dependent on a few contracts, customers, staff, etc (e.g. Thorntons (LON:THT) this morning saying that their fall in FMCG sales is down to one customer).
This got me thinking about the margin of safety. With markets now fully, or over-priced for many, maybe most, small caps, I am increasingly firming up my view that it's dangerous to pay such high prices for stocks, because you then have no margin of safety if/when something goes wrong.
Also, if 15% of your stocks are going to warn on profit, then you have to be sure that the other 85% have enough upside potential in them to more than make up the shortfall. So if you're paying toppy prices for fashionable stocks with strong momentum, where is your upside going to come from? More momentum? So what happens when momentum eventually breaks? I think it could get very messy when eventually buying the dips stops working.
With us only days away from the start of "Sell in May and go away", made worse by General Election uncertainty this year, I'm thinking about putting a self-imposed ban on opening any new long positions, and possibly trimming back a little on existing long positions, and maybe opening or increasing a few of shorts on over-valued stocks.
What do readers think? Do you follow the (statistically proven) sell in May approach? Comments in the comments, below.
Benchmark Holdings (LON:BMK)
Share price: 82p (down 26% today)
No. shares: 219.3m
Market Cap: £179.8m
Profit warning - if the share price drops sharply on a trading update, I rename it here as a profit warning, for clarity. Shares in this fish medicines group have dropped sharply this morning, although they've bounced somewhat from the…
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Benchmark Holdings plc is engaged in the provision of aquaculture health, genetics and nutrition. The Company’s segments include genetics, advanced nutrition and health. The Company develops products that helps fish and shrimp to improve their sustainability and profitability by improving yield, quality, and by reducing mortality. The Company’s products include high genetic quality ova for salmon, shrimp and tilapia, and breeding, program, specialist feeds for early stage shrimp and fish; probiotics, Vaccines, biocides, and medicines. more »
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Servoca Plc is a holding company. The Company provides specialist outsourcing and recruitment services to customers in the medical, educational and security markets. Its segments include Outsourcing and Recruitment. The Outsourcing segment provides services to the domiciliary care and security sectors. The Recruitment segment provides recruitment services to the healthcare, education and police sectors. It operates in five markets: education recruitment, healthcare recruitment, homecare, criminal justice and security. Its Education Recruitment division supplies school staff ranging from qualified teachers, middle managers, senior leadership and learning support staff. Its Healthcare Recruitment division focuses on the supply of Specialist Nurses, Student Nurses, Healthcare Assistants and associated roles. The Homecare business supplies care at home. Its Criminal Justice operation focuses on supplying people and services in areas associated with the civil and criminal justice markets. more »
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22 Comments on this Article show/hide all
Paul,
If I was you I'd delay making any investment decisions while living on a £1 a day. I'd be very surprised if it wasn't clouding your mood or outlook generally. Wait until you have got at least a couple of pies inside you!
Sounding very pessimistic today, and wondering if the diet is having any effect.
Lee
"What do readers think? Do you follow the (statistically proven) sell in May approach?" -
I am also having trouble finding value. I am probably not going to sell anything in May, but I prefer to sit on my hands and wait for things to come back into range. I have been following this guy - he seems to write a lot of sense.
http://humblestudentofthemarkets.blogspot.de/2015/04/new-highs-last-hurrah.html
And of course, Mental Crumble.
http://mentalcrumble.com/blog/a-potent-and-combustible-combination142015