Good morning! I'm sitting here scratching my head, trying to work out what on earth is going on with the markets! Everyone (including myself) seemed to think that US equities had become overheated, and that the sharp sell-off a few weeks ago was a necessary & healthy correction. So what's happened since? The US market has gone straight back up again to record highs!! I don't understand it at all.
Since the market as a whole is strong, but many small caps are very weak (often for no good reason), then that looks to me like a buying opportunity at the moment, selectively (as always).
SuperGroup (LON:SGP)
Share price: 814p
No. shares: 81.0m
Market Cap: £659.3m
Not a small cap, but I'm mentioning it for two reasons. Firstly, I have a particular focus on non-food retailers, as I worked as an FD for 8 years for a ladieswear retail chain, so it's the sector I understand best. Secondly, there is a strong theme at the moment with exceptionally mild weather causing problems for clothing retailers especially.
Mild weather in September is very bad for clothing retailers, as it means that customers hold back on buying relatively high priced winter clothing like coats, jumpers, etc. However, a mild patch (it's still almost like summer here on the south coast, I have the windows open & am wearing shorts!) that lasts all the way through Sept & Oct too, is virtually unprecedented.
So I imagine that the whole sector must be having collective kittens, and worrying about being horribly over-stocked. That's bad for sales, but also margins, as the excess stock will have to be cleared, and the only way to do that is to reduce prices.
The market is anticipating this, and share prices are coming down, especially when the inevitable profit warnings come out. However, this is an opportunity! Weather is often trotted out as an excuse by badly performing retailers, but this is the real deal at the moment - there's no doubt all clothing retailers will be finding things very difficult. It may be too late to salvage a good autumn/winter season this year, but so what? The weather just fluctuates naturally, and it will probably go the other way next year, leading to bumper jumper sales!
I can't resist falling knives, but have learned (the hard way!) that the trick is to buy cheap shares when a…
