Welcome back to your weekend edition of Money Morning.
This is where we highlight some of the best bits from our free emails, newsletters, blog and MoneyWeek magazine that we’ve published in the past week.
● Greece was back at the top of the news agenda this week. I wrote about the country’s problems in Money Morning. But the long and the short of it is – Greece looks increasingly like it will be unable to repay its debts without outside help. It’s even been compared unfavourably to Argentina irca 2001, which shows you how bad things are.
But you might want to keep your eyes open this weekend for more news on the troubled Club Med country. I’m just reading an interesting piece posted on the FT Alphaville blog citing a research note from UBS. UBS reckons that an IMF intervention in Greece as soon as today or tomorrow “is a distinct possibility”. Why? Because if the state of the bond markets means that the country ends up being unable to roll over bonds due on 20 April, “it could run out of cash”.
We’ll keep you posted.
● Something else happened this week. I’m sure it was important. Remind me…
Oh yeah, of course, the election. The big date was finally announced as being 6 May. I was on a beach in north Norfolk with my family so happily missed the whole thing. (A really nice little place called Wells-next-the-Sea – I’d never been before and was very pleasantly surprised – golden sandy beach and not at all run down like some British seaside towns. If you fancy a short break a couple of hours’ drive from London, I highly recommend it).
Anyway, back to the election. Labour and the Tories promptly had a set-to over National Insurance. And I’m sure there will be lots of other little spats over the next few weeks. But how will the election affect your portfolio?
Theo Casey reckons he knows. Theo tells readers of the Fleet Street Letter that “the Tories will take it, though probably not ‘by a whopping margin.’ This isn’t a party political view,” says Theo. “It’s a simple assessment of the facts. To use the hackneyed Clinton-era quote, ‘it’s the economy, stupid.’ And on that sword, our former chancellor must surely fall.”
If the Tories win, then spending cuts will follow. They’ll have to in any case. But it’ll happen more rapidly with a clear winner rather than a hung parliament. “Very few profit opportunities come from a miserly government.” So you need to “focus on the investments to sell in this climate.” Stocks which depend heavily on UK government spending include social care services provider Caretech and support services group Babcock International.
● As well as the UK election and Greece, the other big story was soaring oil and petrol prices. So when Paul Hill asked readers of his Precision Guided Investments newsletter which stocks in their own portfolios they’d most like him to run the slide rule over, he wasn’t surprised when he was inundated with requests to analyse oil companies. Now Paul knows his stuff and like everyone else on the MoneyWeek team, he’s not afraid to express his opinions. And right now, he’s certainly no oil bull.
“From hysteria in the Falklands – with many British investors biting through their nails as they await news of a massive oil strike – to misplaced hopes for oil majors on the back of a strong recovery in global demand, oil stocks seem to be a conduit for the blind optimism that is driving the markets at the moment.
“We need to set the record straight. I believe we’re heading for a double dip, which will burst all of the fake hope that has built up in oil stocks over the last year.” What does this mean for the likes of Desire Petroleum or Falkland Oil & Gas? Well, Paul’s view is that buying into these very high-risk stocks “is more akin to pigeon-racing than investment. I would avoid these all or nothing plays. The chance of a total wipe-out is too high.”
● I have to admit, I have a lot of sympathy with Paul on that point. That said, there are times when an investor simply wants to put the sensible buys to one side and have a good old speculate. And if you can afford to risk the money, then why not?
Tom Bulford in his Penny Sleuth free email this week looked at an intriguing little stock that might be worth a punt. China Food Company (Aim: CFC) is China’s ninth-largest soy sauce producer among other things. It’s trading on a p/e ratio of around three times, and yet broker FinnCap reckons it will grow its annual sales by 136% to £68m over the next two years.
“I have warned before that Chinese companies quoted on the London Stock Market are not always quite what they seem,” says Tom. “But China Food seems to be suffering from the shock of a poor year. It was hit by the recession, particularly suffering as a result of a downturn in farm income (more than half of its sales come from selling animal feed).
“Another problem is that the shares of China Food are tightly held by its founders and directors, precluding any serious interest from City investors.
“But for a private investor looking for a punt on China’s changing tastes, this certainly looks a saucy candidate. It’s one that I’m adding to my watch list of penny share China plays.”
● Getting back to the high cost of oil – recent advances in drilling technology mean that there’s one alternative energy source which is now both cheap and plentiful – natural gas.
I’ll let Riccardo Marzi, writer of the Events Trader newsletter, take it from here. “You might have heard of the Marcellus Shale, which stretches from New York to West Pennsylvania. Via use of horizontal drilling and hydraulic fracturing (or fracking), companies have now been able to exploit the massive reserves of natural gas trapped in these rock formations for the first time.
“One industry-backed study estimates that the US has more than 2,200 trillion cubic feet of gas waiting to be pumped.” To put that into perspective, “that’s enough to satisfy nearly 100 years of current US natural gas demand.”
Natural gas is attractive for three reasons, says Riccardo. It’s clean. It’s cheap. And it’s in America’s backyard, rather than located in the hands of a hostile or unstable regime. And of course, it’s not just happening in the US. Recent finds in Poland threaten Russia’s hold on European gas supplies.
So what’s the best way to invest? Well, Riccardo is keeping his eye out for more consolidation in the sector, as oil companies compete to bid for promising natural gas plays. But the biggest opportunities could come in the summer, he reckons, as demand for gas falls with the warmer weather.
● David will be back on Monday, where he’ll be looking at another pile of dodgy debt that looks as though it could be heading for the grinder in the near future – junk bonds.
Useful links
Want to find out more about any of the newsletters and contributors I’ve quoted today? Just click on these links:
Theo Casey in the Fleet Street Letter
Tom Bulford’s free email, Penny Sleuth
Paul Hill’s newsletter, Precision Guided Investments
Riccardo Marzi’s newsletter, Events Trader