Stock Picking Challenge - Q3 Review

Late last December - when most of the world was still unprepared for the economic and social turmoil that was on the way - we launched the 2020 Stockopedia Stock Picking Challenge. After an upbeat year for shares, we laid down the gauntlet for stock pickers to come up with their five best ideas in a head-to-head challenge with a trip to New York City at stake.

By the end of Q1, Covid-19 was with us and things looked bleak. Governments around the world were taking drastic steps to tackle the disease, with mixed results. Economies were plunged into chaos and stock markets (certainly in the UK) tanked for a time.

But there were still winners. The stock market is a ruthless judge, and while some sectors were pummelled, others did better. Consumer staples, gold and a handful of small-cap healthcare stocks held up well and in some cases surged. By the end of March, the leading stock picker - Rich The Newbie - had set an impressive pace with a 161.8% gain. He was helped in large part by a holding in the pharma share, Synairgen.

Winners in a year of turmoil

Fast forward six months to the present and there are still many questions... the prospect of more Covid restrictions (and their unpredictable economic impact), a US Presidential election and, of course, uncertainties around a Brexit trade deal.

The FTSE All-Share is still around 20% off its pre-crisis highs in February. The more speculative AIM All Share, which is dominated by a relatively small number of very large companies, has recovered its lost ground and is pushing on. In parts of the market there are deep concerns, but in others there’s more than a hint of speculative enthusiasm.

As a reminder, there were 2,153 entrants to the challenge when we kicked off trading in 2020:

• Given that entrants picked five stocks each, that’s 10,765 stock picks in total
• Overall, 2,446 different stocks were picked...
• 1,123 were UK shares
• 1,323 were international shares
• 62% of entrants were Stockopedia subscribers and 38% were non-subscribers

Unaware of the impact that Covid-19 would soon have, the weight of interest last December among subscribers was in the consumer cyclicals and industrials sectors. Non-subscribers preferred the stock-picking territory of energy and mining.

But as we saw earlier in the year, it has actually been a small number of healthcare stocks that have made the biggest impact on this challenge over the past nine months. Leading the pack as we closed off the third quarter was Steve Byrne (SeaRd), with a gain of 611.5%.

Stock Picking Challenge - after 9 months

Picking Covid winners has been one of the hottest topics in the stock market this year, and staggeringly Steve managed to pick three of them before (presumably!) having much of an idea about what was coming down the line. Synairgen, Omega Diagnostics and Deepverge have felt the upside from what is an otherwise dire situation. So well done Steve.

Steve’s picks (13/10/2020)

Here’s what he had to say about some of those stock picks…

“I used to rigidly follow a “best quality at best price” mantra and was an early subscriber to Stocko to filter out small cap QV “diamonds-in-the-rough” while minimising risk. However the John Kay investment book "The long and the short of it" totally changed my perspective. Now I am quite happy to embrace “risky” stocks in a diversified portfolio as per John Kay's ideas.

“With regards to Synairgen, pharma is always risky especially during the clinical stages. It is always a case of trying to balance risk to reward and again John Kay outlines that admirably. I have been a Synairgen holder over several years and was horrified late last year to see how a mismanaged Phase II study (Asthma), a delayed phase II study (COPD) and the Woodford scandal had decimated the share price despite the fact that peer-group academic research was supporting the case for the SNG001 antiviral benefits. I cannot claim any magical foresight regarding the Covid Pandemic or the Covid Phase II results but I believe that the anti-viral properties of SNG001 means that the drug will still be in demand even after the current pandemic becomes less threatening.

“With regards to Integumen [now Deepverge], I became interested when EU legislation required cosmetic companies to have scientific proof for their product claims. Especially for a customer base that would be very resistant to using animal testing, the use of artificial (cloned) skin seemed opportune. At the time, I was concerned that the company would go bust. However, when Gerry Brandon took over as CEO and started to reorganise and refocus what was obviously a failing company, I initially invested with a small opening position. Then when Integumen bought out Rinocloud, an Artificial Intelligence company, I increased my position size. Integumen is still high risk but their recent collaboration and potential merger with Modern Water Group opens up some very interesting paths to market. I suspect I will be proposing them for the "2021 Stock Picking Challenge" if there is one!”

Preparing for the final straight

We could hardly have predicted how the 2020 Stock Picking Challenge would unfold, so it would be foolhardy to start making predictions now. Covid has had a dramatic impact on all aspects of life and the economy, much of it negative. But it’s also had a curious impact on the stock market. Last year’s benign conditions have given way to a more febrile environment where we’ve had lots of underwhelming performances interspersed by some quite spectacular wins. With just over 11 weeks until the end of the year, markets still look jittery but there could be a few more surprises to come. We’ll report back at the end of the year.