As the new month arrives, there was plenty to keep investors occupied - and anxious.
Some Stocks are Still Expensive
1) It’s been a volatile week on the markets as investors learned (again) that coronavirus risk has not gone away. Airline stocks have again been in focus as the prospect of travel restrictions resurfaces with the new Omicrom variant. Given the toppy market conditions this year, it’s not surprising to find more than a hundred stocks covered by Morningstar that are significantly overvalued. Within these 5-star stocks, which include Ferrari and Netflix, there are extremely overvalued stocks.
Tech and Bonds Come Back
2) The impact of our new virus mutation was made clear this week as we looked at which funds had the best and worst performance in the past month. We found bond funds and US equities at the top of our list – two categories that fared well at the height of the pandemic too. And, at the other end of the scale, emerging Europe and Russia funds had a hard time. This fits the narrative of the sharp oil price fall as well as political tension. Whether we can expect markets to revert to its lockdown ways again depends on the impact of the new strain.
Don’t Take it Personally, Jack
3) Twitter founder Jack Dorsey (pictured here in 2010 as a young man sans barbe) announced his resignation and the shares shot up by 10%, perhaps not the send-off he was expecting as he relinquished control of the social media firm. Shares then slipped back as investors started to fret about Dorsey’s replacement, Twitter insider Parag Agrawal. Still, Morningstar analysts left the fair value of Twitter unchanged, and are positive about the development, particularly considering Dorsey’s distraction in running Square. Fun fact: Twitter shares are up less than 10% since its float. Square's are up 1,322%, helped by the surge in remote collaboration tools last year.
FTSE Reshuffle Confirmed
4) Darktrace and Johnson Matthey are out of the FTSE 100 in the latest rejig of the index. Shares in the cybersecurity and chemicals firms started strongly this year but have suffered abrupt turnarounds. Changing market sentiment, strategic mis-steps and share sales are all thought to be behind these demotions. Darktrace looked to have pulled off the impossible by pricing its IPO well and seeing a big bounce in the share price after the float. Since then the shine has started to come off a bit. Pet product supplier Dechra Pharmaceuticals and industrial electronics firm Electrocomponents have been promoted.
Why Are We Bad With Money?
5) What lies behind Britain’s financial illiteracy and poor decision making? Editor Ollie Smith asked Abi Collier from Octopus for her views on why we are rubbish with money and what we can do about it. In a two-parter, she has some tips on how to set savings goals and get the best from your money.
IPOs are Not the End
6) We write a lot about IPOs at Morningstar.co.uk and how new investors have profited (or lost out) when a company has gone public. Journalists can only know so much, of course, so it's useful to hear from someone who has worked on the process. Imran Anwar played a key role in the float of The Hut Group and has related his experiences in floating the e-commerce company. He reveals some important lessons, such as how to deal with investors, and to make sure your financial releases are timely and accurate.
Don’t Leave it Too Late
7) Now we are comfortable shouting at strangers on social media about politics and gender, the British may be getting less reserved with every passing year. But money is still one of those topics that seems to be off limits, even within families. People often start talking about it when it’s too late, and family members are wrapping up estates without a full picture of assets and their parents’ wishes. Morningstar’s Ollie Smith recently had a frank chat with his Dad about money and urges children to do the same with their parents.
Knee Replacements Can Last 30 Years
8) Our weekly stock video looked at medical equpiment maker Smith & Nephew, whose shares are considered to be undervalued by our analysts. The first knee replacement was performed as far back as the 1960s but now some new knee joints made by Smith & Nephew can last up to 30 years. Orthopaedic surgeons are more loyal than your average supermarket shopper too – the cost of switching supplier can be onerous, and the surgeons don’t have time to learn new systems either.
Some Fund Managers Like Property Too
9) Pictet’s Alex Howson, who runs the specialist asset manager’s nutrition fund, was asked to choose between a pension and a property – if push came to shove, he would go for the latter. Cheap mortgages help, plus a house can be a good investment while you enjoy living in it. (This week Nationwide said that house prices have risen 10% year on year, and are now 15% above pre-pandemic levels.)
A Company Merger Could Really Benefit Investors
10) From time to time, companies either merge with another, are acquired by a bigger fish, or acquire a smaller company themselves. While it is often a notable event among bigger firms, it is a lot more common in small-cap sectors. Because of the dynamic nature of the sector, M&A activity comes down to growth, accessing new technology or geographies, or reduce competition. In the end, investors can expect long-term benefits IF (it's a big IF) the deal is sound.
