It has been another good week for UK PLC, with the FTSE 100 and the Pound rising well against the US dollar. Presumably the markets were waiting for the tax tsunami to be out of the way.
However, what this highlights once again is the way that a plunging FTSE 100 and Pound make the headlines, whereas, when they rise there is a conspiracy of silence. Clearly, bad news sells newspapers better than good. But still, it would have been helpful to see a headline saying that the UK index is now 1% up on the year even after all the inflation / Ukraine, or that the Pound is nearly 20% off its US dollar lows.
A little balance from the mainstream media would actually help private investors. For instance, I have said, like a broken record, that 7,000 is a key FTSE 100 level. It was where it peaked in 1999, and therefore on almost any measure of value, under this level has to be regarded as cheap. But who had the nerve to go long last month at 6,800, given the negative sentiment being thrown at us.
Actually, apart from a lack of higher-level guidance from the financial press, there were lessons to be had from the small-cap space. Indeed, I would give a hat tip to Charles Archer, of investingstrategy.co.uk. He jumped in early with his 4 best high-risk / high-reward AIM stocks for 2023.
They were Premier African (PREM), Harland & Wolff (HARL), Baron Oil (BOIL), and Avacta (AVCT). This selection reminded me of one of the main characteristics of stock market investing: anticipating good news. In the case of Baron Oil, Mr Archer suggests that we are in the run-up to the company selling out its “incredible” resource to one of the majors. The question is whether you buy now or wait for the deal to get closer, or even be announced. The positive here is that the stock has risen after the placing already, something which suggests there could be further momentum.
Harland & Wolff
Harland & Wolff (HARL) poses another small cap strategic question. This is also related to big / good news. In this case, the big turnaround came after a £1.6bn government contract. Admittedly, this seemed to be well anticipated. However, one thinks back to all the “big deals” that were supposed to be on the way for small caps and did not happen. If I had a Pound for every deal that was allegedly in the bag, I would certainly be living in the Bahamas, rather renting in Bayswater. Perhaps Harland shows us it is better to buy at a higher price after news actually lands, than be marooned in stocks where it never arrives?
One way of getting around the waiting game is to look at situations where good news has come as a surprise. Made Tech (MTEC) won a £10m contract from the Home Office earlier this month. It was apparently not expected by most investors, and we do not have the follow through hysteria. However, the company appears underpinned in a meaningful way. This would appear to be a more straightforward situation than hoping that 1+1 will equal 4 at some point in the future.
The best example of buying after news is very often when the news is good as a validation. This is because it can suggest the start of a period of positive newsflow, something which is implied at Made Tech. With Alkemy (ALK), the shares are now some three times higher than they were in the aftermath of the BP (BP.) green hydrogen trial announced on October 12. It was stated at the time that a minnow company having an association with a blue chip was meaningful, and this has proved to be the case, over and above this week’s approval for Europe’s biggest lithium plant. And for those thinking that the shares may have come up too far, too soon, with just 7 million tightly held shares, it could be argued it is surprising that the stock has not risen more than it has.
URA Holdings / Lexington
Of course, the stock market is not currently its usual self as far as small cap stocks are concerned. Even situations which would in bull market conditions, be flying off the shelves, take a while to get going. Even the aforementioned Alkemy took a while to rally in earnest. This week’s unsung hero may turn out to be URA Holdings (URAH). The company came to the main market in March, with a market cap of just £3m, and with Bernard Oliver as Chair, of Lexington Gold (LEX) fame. Indeed, Lexington shares have nearly doubled since the beginning of the year, with a recent JORC estimate jump there backing this.
As far as URA is concerned, we have a company which signed a Share Purchase Agreement for the Gravelotte emerald mine in South Africa in March, one of the largest emerald mines in the world between 1929 and 2002. This should have caught the attention of some eagled eyed people in the market, given the contrast with the purchase, and the market cap of URA. The implication was that if Gravelotte was even a shadow of its historic self, URA, was sitting on a bargain.
Typically, as most of us are away, any meat on the bone of RNS’s tends to be eroded by the regulatory powers that be. However, URA said: “The combined JORC mineral resource of 29 million carats of contained emeralds far exceeded our expectations. To put the numbers into perspective, if we conservatively use the average price of $9 per carat as achieved by Gemfields (GEM) in September 2022 for their lower grade (commercial grade) emeralds only, then the total contained in situ JORC Resource of 29 million carats has an estimated value of around $261 million.” The market cap of URA is now just £1.8m, and it will be interesting to see how long it takes for the magnitude of this week’s news to sink in.
Finally, a situation where it also took a while for things to sink in: Critical Metals (CRTM). Here news that the company expects Molulu to be producing in weeks, appears to have focused minds. The stock seemed friendless just a few weeks ago at 12p, but now at 28p in the wake of production hopes we are reminded that the P word is key. Once again, in tough market conditions, waiting for the train to arrive, rather than hope it will come, can be the watchword.
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