This month has been the opposite of December 2018 which saw a steep decline on Christmas Eve which marked a year low on Wall St. Now we are seeing new all-time highs posted practically every day. Even the derided stock markets of Europe and the UK - as represented by the FTSE 250, are at or near all-time highs. This is shaping up to make 2020 a difficult year for investors long or short. As the spectre of recession in the US recedes somewhat, but with the Fed still ultra dovish should one continue to buy the dips (a spectacularly successful strategy for the last decade)? Presumably Trump, obsessed by the markets, will do everything in his power to keep them up until the November election and so the much-predicted US market sell-off may not materialise for a while yet.
As for the UK - certainly cheap in comparison with most other markets - the blanket buying of quality high yielding UK-based businesses, while tempting, is also risky in that the precise nature of any Brexit deal is still extremely difficult to call and is likely to dog the UK market and currency for a good portion of next year. In short, I think making investment decisions based on macro assumptions next year is a fool’s errand and it will pay to ignore the noise and be very specific when choosing targets long or short. It pays to look for a long that will prosper in a falling market and a short that will decline in a rising one.
On the short side, 2019 has been difficult thanks to the amazing performance of Tesla (NASDAQ - TSLA) which has confounded all critics and as I write is rapidly approaching the $420 buyout level in Musk’s infamous fraudulent tweet. Tesla’s time will come but its valuation defies rational discussion and it should be treated more like a crypto currency than an equity. On a brighter note, the Tesla losses were more than offset by Thomas Cook, where the writing was on the wall for months and the only constraint was finding and keeping borrow. When looking for the Thomas Cooks for 2020, it is worth noting the characteristics that stand out – the share price has already fallen significantly and the company’s management has started to talk about restructuring and "stakeholders". The company has negative equity (its liabilities exceed its assets), its creditors are effectively in control and its debt trades at, or is privately valued at, significantly below face value. Any takeover of the business should not require a payment to shareholders. And, lastly and importantly, there is borrow in the stock.
I have already written about Sirius Minerals (SXX), which I predict will go the way of Thomas Cook next year, but another one which fits a lot of the above criteria is De La Rue (DLAR). It has been forced to sell the only part of its business which does not seem to be in terminal decline (international identity solutions) for £42 million but this will not make a big dent in its debt. Banknotes are being used less and less in developed countries. Most notes manufactured now are much more durable and therefore need replacing less frequently and the sort of countries that need to regularly replace notes in order to add zeros to them have a habit of not paying their bills, hence the £18 million write off from Venezuela.
Lastly, those who followed the InternetQ saga from a few years ago will remember that its principal asset was a phony music streaming business named Akazoo, which was covered in detail on ShareProphets. The good news is that it has been floated on NASDAQ (NASDAQ - SONG). It is still losing money and still looks as dodgy as it did when it was taken private in 2016. I will report back on this one in due course. Happy Christmas and New Year to all.
This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of its share tip of the year on Monday from Tom & Steve and a new shorting piece next week click HERE
Filed under: Thomas Cook, Optibiotix, ShareProphets share tips of the year, HotStockRockets
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