Here is a quick update on the trades that resulted from the latest monthly screening on the Compound Income Scores Portfolio (CISP) which is based off of the Compound Income Scores. For a reminder this generally tries to pick new holdings from the top Decile & hold positions which at least rank in the top quartile.
Thus the sale candidates which came up as a result of their scores dropping below 75 were: Miton Group (MGR), Ferguson (FERG) and Hays (HAS). Of these Miton Group was the closest call as it had a score of 72 on the back of a low quality score form their variable margins & low ROCE in recent years plus, somewhat surprisingly some recent downgrades. it had however re-rated since it was bought at the turn of the year and provided a total return of 57.4% for the portfolio, including the annual dividend. As the CISP has two fund managers with the other holding in this sector being Jupiter Fund Management which looks cheaper and scores better than Miton (despite having seen bigger downgrades) so I decided to let Miton be sold, although overall it is probably still OK if you wanted to run with it yourself.
Ferguson's score had also slipped due to downgrades and middling quality and reduced value after a 20%+ rise in the price since it was purchased so that went too. Hays was similar although in this case, although the Score was well below the cut off I was tempted to keep it as the score mostly seemed to have deteriorated on not much news and they have a trading update coming up. But given that and the fact that chart seems to be in the middle I guess that could go either way when they update so again I let this one go through.
The replacement candidates that came up again included Plus500 which I have avoided putting in the fund due to my own reservations to detriment of the fund. If I had allowed it when it first came up it would now be showing a 50%+ gain. I see this week they have delivered another positive profits warning although on this occasion the price has not really responded. So maybe the market has caught up to this one now?
So that aside I did plump to put some Ramsdens Group (RFX) into the fund to replace Miton Group. This brings foreign currency (travel money), jewellery retailing, Pawn broking and a bit of a roll out story to the portfolio and might provide some defensive aspects if things do cut up rough given their exposure to the gold price and more demand for the pawn if the economy should go into reverse. It also looks quite cheap on less than 10x with a 4%+ yield and as a bonus was looking oversold thanks to some badly handled / communicated directors sales last week. I was probably biased in favour of this one though as I bought some myself recently too, but in my defence I note Stockopedia rates it as a Super Stock.
Next in was Qinetiq (QQ.) which describes itself as a leading science and engineering company operating primarily in the defence, security and aerospace markets (click their name & the other two to visit the investor relations websites if you want to learn more about them and research them further). It seems a pretty good quality play with improving fundamentals, although it is not the cheapest stock in the market, but nevertheless it brings something different to the portfolio and Scores well with a CIS of 97 so in it goes. Again I probably have a bias here, but in favour of this one as I bought it myself earlier in the year in the low 200's, although again this is a Super Stock according to Stockopedia.
Finally for a bit more defensive stodge I reluctantly allowed Wynnstay (WYN) to re-enter the portfolio, despite its previous low return appearance. It seems to be recovering from a difficult patch and has seen upgrades after their interim results and Stockopedia have it down as a Super Stock too so who am I to argue. If it can return to its previous highs from last year, then it could at least provide a 20%+ return this time around which might be more exciting, but I wouldn't hold your breathe as this seems like a boring dependable stock, albeit low quality with low stable margins of around 2%, which has been around as a business for 100 years, but sometimes boring is good! I note it is a bit over bought in the short term, so if you are tempted you might get a better entry point if you are patient or not as the case may be. Personally I struggle to get excited about this one with its low margins, but for the record Stockopedia seems to think this one is a Super Stock too - so appropriately given what it does, their Stock Rank system is er... bullish on this one!
Click a chart any chart below to bring up a larger view and you can then scroll right through them.
Just a quick update to the recent post on Alliance Pharma (APH) about the welcome news of their anti emetic drug being approvable. At the time I thought it might be positive for earnings but not until next year and since I wrote that I saw reference to a broker saying it could be worth 10 to 15p onto the share price.
Since then the shares have moved up from the 90p they were at the time to around 100p having gone xd the final dividend of 0.888p on Thursday this week. Having seen the shares double in under a year I think the re-rating has probably nearly run far enough as it is now trading on around 20x December 2019 earnings, although of course given the above these may at some point be upgraded if the launch goes well. The yield is also now well below my usual 2% threshold too at 1.5%.
Thus following my valuation discipline and ignoring all the suggestions of running your winners, I have reduced my own holdings this week post the XD for risk control and to rotate into a better value higher scoring stock. I note that the current CI Score would also mean it being sold for the CISP if it were being screened this week.
In addition on the chart the shares are overbought (although they could of course still get more overbought) and there is negative divergence on the RSI which normally pressages a correction. They are also very extended above their moving averages and have had a very large one month return. It is also well known that there is a tendency for mean reversion of big one month moves which is why price momentum indicators (including the one available in the CI Scores) tend to be based off of 12 month - 1 month performance to correct for this effect. I also note the gap on the chart at 90p and I have noted in the past that these usually tend to get filled if you are patient. So I'll set myself an alert to perhaps revisit it as and when or if it should get back down there at some point.
Finally in case you are wondering I started a holding in Ramsdens Group (RFX) with the proceeds which is a high street currency provider, pawn broker and jewellery retailer. This is on around 11x with a 3.5%+ growing yield & a clean balance sheet and scores very well on the CI Scores and the Stockopedia Stock Ranks too. I do note however that recent support is closer to 180p and there's also a gap on the chart here at about 145p which might be a more interesting longer term entry point if you are patient and of course depending on how the shares have come to get back there if they should.