A constant theme of any investment column must be spotting opportunities thrown up by company results and trading updates. You do have to be patient: for the most part the market reacts at the opening of trading and by the time you have a chance to buy or sell the price has already moved too far against you.
I must declare an interest. I hold shares in Johnson Matthey and despite some anxious moments of late I am up 16%
Occasionally, though, the share price reaction is less marked than, or even the opposite of, what you would expect and an opportunity opens up for those prepared to be brave and go against the short-term flow. I believe such an opportunity arose with chemicals company Johnson Matthey (JMAT) this week and possibly with building materials supplier Wolseley (WOS).
I must declare an interest. I hold shares in Johnson Matthey and despite some anxious moments of late I am up 16% plus the dividends I have received over the past few years.
The results for the year to March 31 were not exactly overwhelming, with revenue up 7% but profits down 5%. This was though, as JM put it, “a robust performance in challenging markets”. Costs are being reduced and the business is at least generating plenty of cash, justifying a rise in the dividend, which is covered more than twice.
Crucially, the performance over the past two months indicates that the current year will be an improvement on the previous one.
The shares were £35 this time last year but they dropped below £23 in February before recovering some ground. They added just less than £1 to reach £29 on the results. I believe they will finish this year clearly higher than they are now. It’s not too late to buy for further recovery.
Wolseley managed not only a sizeable increase in revenue but an even bigger leap on profits in the three months to April 30, the third quarter, with favourable movements in exchange rates boosting the figures further. Trading was particularly good in the US, showed a more modest improvement in the UK, Central Europe and Canada and fell back only in Scandinavia.
This superficially encouraging performance produced a fall of 223p in the shares to 3828p and a further drop of 62p over the following two days, a total loss of 8%.
The sticking point was news that demand in several markets remains subdued and like-for-like revenue growth has been only 1% so far in the fourth quarter. Trading profits are, however, in line with analysts’ expectations.
In my view the fall has been overdone. Good luck to anyone brave enough to go against the herd. This is risky but potentially rewarding.
Side to Side the Stock Market Goes
It often feels as if the stock market is under pressure even when it is going sideways. Thus it has been since last August. Over the past 10 months the FTSE 100 index has, for the most part, moved within a range of 5,900 to 6,400 points. We are currently edging around 6,200, pretty much in the middle of that range.
There have been two occasions when the range was breached, both on the downside. Once was in January and the second more severe dip to 5,537 points came in February. Those troughs have left a lingering fear that risks are very much on the downside.
I take the opposite view. If the market can hold up against two such severe shocks then the optimists outnumber the pessimists. I have remarked before that the Brexit debate has had little effect on shares, particularly in the blue chip index where most companies are international anyway.
Investors rightly ignored the discredited notion that one should sell in May: the FTSE100 fell just 10 points that month. The next two weeks could be the best opportunity to buy for some time if we vote to stay in the EU. If we vote to come out the market will admittedly in all likelihood fall but the impact will be short-lived.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
