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.

First up on the sale candidates was Amino Technologies (AMO) the Software provider to network TV operators, which had reported disappointing half year results as expected earlier in the month. The conundrum with this one is that they say this is due to a major customer order scheduling, but they say they expect to make up the shortfall in the second half. This does however leave them as a hostage to fortune and potentially an accident waiting to happen, so I let it go. The only thing that gave me pause for thought was that the forecasts had jumped after the figures, so maybe an analyst is confident they will bounce back or more likely just following the company line, as ever time will tell, but I'll be watching from the sidelines.

The second sale was VP the tool hire & services company which had done well since entering the portfolio at the turn of the year. The score had therefore deteriorated & the shares looked overbought so I didn't argue with it.

Those together with the cash that was retained last month & from 3 dividends this month gave room for three new positions, based on their Scores and factoring exposure the portfolio already has in place. Thus to replace VP, Somero (SOM) another cyclical construction related service provider seemed like a natural replacement as it scored better than VP.

Next up was a slightly strange one called Chruchill China (CHH) - which is quite similar to Portmeirion (PMP) which the portfolio has traded successfully in the past. In this case it looks as though it is being well managed as it increases the proportion of sales it gets from international catering markets and by increasing value added offerings thereby helping to shrink the contribution from the UK consumer business where conditions remain difficult. 
Apart from it scoring well i notice that despite the recent upgrades after their trading update, the price has not really responded. So given the numbers I reckon the market might wake up to it and respond positively when they actually deliver their final results at the end of August., assuming of course that the outlook then still remains positive.

Finally the last new holding which brings something different to the portfolio was the recently listed legal services group  Gateley (GTLY). This one scores well and looks reasonable value having come back from highs recently, despite earnings upgrades and the fact that it is still come the final dividend of 4.8p which is worth about 3% at recent prices.  

So here we are half way though the year already and for once we seem to be having a proper summer in the UK, as the jet stream is apparently behaving itself this year. Fortunately, like the weather the UK stock market has also picked up and started to behave itself after a decidedly chilly first quarter, although June did provide a modestly negative total return. See the table below for full details.

 Source: FTSE Russell

Consequently the Monthly market timing indicators that I track for the UK indices all remain ahead of their respective moving averages by around 4%, although only 2% in the case of small caps as they have lagged the broader recovery this quarter. Thus these are signalling that it should be safe to carry on compounding as do the economic indicators that I monitor.

With that in mind moving onto the Compound Income Scores Portfolio (CISP) - it was another good month for the portfolio. It produced a total return of +2.61% for the month which compares with the -0.18% from the FTSE All Share which I compare it to. This leaves it up by 6.6% YTD, which is 4.9% ahead of the above index. The star this month was Auto Trader (Auto) which roared up by 21.3% on the back of well received results. While I'm glad I gave VP the benefit of the doubt last month ahead of its results, as they also rose by 14.7% when these were well received too. The third double digit riser was Tapitica (TAP) which bounced back more on relief that it's update was not a warning like the one produced by XL Media, which the Scores managed to get the CISP out of before it happened.

On the downside Ferrexpo (FXPO) continued to sink like a lead balloon on the back of trade war fears leading to falling metals prices, while Bellway (BWY), despite a good update, suffered from profit talking as some others in the sector seemed to be indicating that margin may come under pressure from here. So maybe this is as good as it gets for housebuilders perhaps? Finally Spectris (SXS) fell by 8% but I can't see anything that might have caused that other than a catch all profit taking comment.

Since inception just over three years ago it means that the CISP has achieved annualized returns of 19.9% per annum, not bad although that's not a patch on the 50% per annum returns reported by @Glasshalffull1 on Twitter. Finally on the numbers don't forget you can get a breakdown of the monthly performance via a link on the Portfolio page or by clicking here if it's too hot for you to click twice.

So everything in the Stock Market garden appears rosy at the moment even if the actual garden is looking a bit scorched as we continue with the proper summer referenced earlier and the continuous blue skies. Indeed for recent investors it must seem like blue skies every day in the stock market these days. It is however worth remembering that stock markets tend to be leading indicators of trouble ahead and can and do start corrections or have crashes even when the skies seem blue, think 1987 crash, 2000 .com bear market and of course the financial crisis in 2008.

Now I'm not saying that one of those events is imminent, but worth bearing in mind that we have had a 9 year bull market already and the US Federal Reserve seems likely to continue raising rates and as the old saying goes "don't fight the Fed." So at some point the effects of that and the withdrawal of liquidity by other Central Banks around the world will, like the sun and plants in the garden, cause stock market returns to wilt, in the same way that it lubricated them on the way up.

Finally since we're having a Summer a bit like 1976 I'll leave you with a track from that year, the lyrics from which stating "You can check in any time you like but you can never leave..." also seem appropriate to the seemingly impossible BREXIT negotiations where re-moaner rebels seem intent on ensuring that we never actually leave. Indeed I've doubted all along if we would ever actually leave and I continue to think I'll believe it when and if I see it.

After that I'll just share another video which I saw recently featuring Paul McCartney which was both funny & moving at the same time. If you dind't see it and even if you don't like James Corden I'd recommend it as it might change your mind - enjoy and have a great summer.

Further to this months screening, as expected we have had final results from VP plc today. These appear to be slightly ahead of forecasts with revenues coming in at £303.6m versus forecasts of just less than £300m and basic eps pre amortisation at over 81.8p versus a consensus forecast of around 79p. the dividend was raised by 18% to 26p which was also slightly ahead  of the forecast 25.3p or so.

Thus it looks like they made sure they could slightly exceed expectations and despite market uncertainties they say that they - "...look forward to the new financial year with confidence."
So they look fine on a prospective 10x PE with a 3% yield as another year of strong growth is forecast, but we'll have to wait and see if these results lead to any changes to forecasts which will feed through to the Score next month.

The shares having had a good run into the figures may pause for breathe as they are approaching the top of their recent trading range between 800p and 940p or so which may act as resistance. Given the valuation and the outlook however, I wouldn't be surprised to see them breaking out to the upside in due course if not today.

Mid morning update - the figures seem to have been well received and the shares are currently up by about 5% - so maybe breaking out already. I also saw a note from Equity Development where they upgraded their numbers to 95p with a 30.2p dividend which compares to 93.7p & 29.2p consensus.  They also raised their price target to 1070p for what that's worth, although reinforces the breakout theory.

With it being the first week of the new month and a New Year in this case I undertook the monthly re-screening of the portfolio having not done any trades on the back of the one in December given the likely thin market conditions and some marginal sales that came up at that time. There were however two natural sales this month, the first of which was the insurance broker Jardine Lloyd Thomson (JTL) which had only entered the portfolio at the end of  October on the back of some upgrades. This time around the score had deteriorated to 69 as the previous upgrades seemed to have been reversed. This was now well below the 75 to 80 sale threshold that I normally use, having been just around it in December. Thus it was a natural sale on the process and therefore booked a small profit of around 6% on this as the share price had risen despite the downgrades. Personally I felt indifferent about it too as it is on close to 20x with a 2.6% yield and only had fairly modest dividend growth forecasts of 5.3% in the current year.

This was replaced with another financial in the shape of Miton Group (MGR) the small (£64m Market Cap.) fund management company, although the emerging market specialist City of London Group (CLIG) ran it a close second as it seems pretty stable, good value and emerging markets still seem relatively cheap. I did also debate this with myself as the portfolio already has a fund manager and a broking company, but hey we are in a bull market and global economies seem set fair so I let it go in as the highest scoring qualifying candidate after applying my value constraints. The other attraction with Miton, in contrast to JLT, was that it had already said they were going to beat forecasts and had upgrades accordingly. Despite this and a rise in the price post the announcement it seems to have drifted back since (on profit taking presumably), so it also seemed to be offering an attractive entry point. It also offers reasonable valuation characteristics of a PE under 12x and a yield of close to 4% based on next years (December 2018) forecasts which suggest dividend growth of 27% after this years forecast 10%. That does seem like quite a jump so maybe this years dividend could be better than expected as analysts often upgrade earnings but fail to adjust their dividend forecasts, plus they have a cash rich balance sheet too. Finally also worth noting that they only seem to pay the dividend once a year in May with an XD in March - so another reason why this may be an opportune moment to pick some up. However, given the small market cap. it may not be that liquid, but in the interests of full disclosure I have managed to buy some myself having booked a decent trading profit on some Polar Capital (POLR) that I picked up towards the end of last year after they had strong upgrades.

The second natural sale based on a decline in its score, also primarily on downgrades, was the expensive, quality, defensive(?) stock Diageo (DGE) where the score had fallen to 73 making it much more of a marginal call. The valuation is looking stretched though as the share price momentum it has displayed has left it with a PE of 22.2x, a yield of 2.55% and an earnings yield of less than 5%. So I decided to follow the process rather than my own feelings as personally I continue to hold it as part of a broader diversified income portfolio.

A couple of similar or defensive type stocks which came up as possible replacements were Stock Spirits (STCK) and AB Foods (ABF). Neither of these seemed particularly cheap either so in the end I replaced it with a much cheaper, but more cyclical company which scores highly. This was the equipment rental firm VP which trades on a sub 10x PE with a yield of 3.2% with dividend growth forecast to be 15% and a good track record on that front too. It had also seen upgrades recently on the back of an upbeat trading statement, although the shares had also drifted back a bit recently too. It does feel a bit like I'm coming late to this particular party, but then that's what following a quantitative process does, makes you take what feel like uncomfortable decisions. In this case I can probably rationalize it given the valuation and the strongish economic background generally.

Other candidates in a similar space were Ashtead (AHT), dismissed because it yielded under 2% and Somero (SOM) which was sold back in August for the portfolio, but which I picked up myself toward the end of last year. It looks pretty solid (pun intended) assuming they can deliver the promised second half recovery from poor weather related trading in H1. It didn't score as well as or look such good value as VP on a PE and yield basis, although it does offer a more attractive looking earnings yield, but personally I can see the attractions and they could also be a beneficiary of the recently proposed US tax changes.

So there ends the update on the trades & other ideas from the Compound Income Scores Portfolio monthly screening and don't forget if you would like to identify more opportunities like these yourself by using the Compound Income Scores as part of your investment research process too, then you can read more about them and gain access to them for the equivalent of just £1 a week by clicking here or on the Scores menu in the navigation menu toward the top of the site or the three bars if you are on a mobile / tablet. Here's to a Happy and Prosperous New Year.