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Our annual stock picks are up by 16% so far this year
After a roaring start to the year for our ‘fantastic stocks for 2019’ portfolio, it has been a more testing time in recent months. We’ve faced earnings setbacks, fall-out from other stocks, and the pressures of a weaker global economic outlook.
Fortunately we are still streets ahead, having delivered 61% outperformance versus the broader stock market as measured by the FTSE All-Share. We’re up 16% versus 9.9% from the benchmark.
With just under three months left to run before the end of our 12 month exercise, we are certainly not complacent as many of the negative pressures still hang over some of our selections.
Shares in high street clothing giant Next (NXT) are up 51.2% year-to-date with the retailer coping with the structural challenges facing the sector. Group sales increased by 3.7% to £2.06bn in the six months to 31 July and shareholders were treated to a 4.5% rise in the dividend to 57.5p.
Its growth strategy includes offering third party products and making sure that online shopping is about choice rather than home delivery or price.
Shares in legal services firm Keystone Law (KEYS:AIM) have bounced back after a small lull during the summer. Revenue and profit were both up 15% for the six months to 31 July as the Keystone platform attracted more high-calibre senior lawyers.
As well as adding more fee-earners, Keystone’s platform model allows it to cross-sell legal services to its clients thereby deepening its ties with them.
The UK legal ‘mid-market’ is worth an estimated £9bn in annual revenue and Keystone believes the firm’s model is ‘absolutely scalable’ with a minimum of investment.
Despite some up and down moments our positive call on media group Euromoney (ERM) is comfortably in the money, up by more than a quarter on our entry point. The shares have been driven higher by robust financial results and the removal of a significant share overhang as Daily Mail & General Trust (DMGT) returned its 49% stake to shareholders.
In the six months to 31 March, earnings before interest, tax, depreciation and amortisation came in at £46.2m against a forecast £40m, driven by its pricing and data business. The company recently commenced a strategic review of its underperforming asset management-focused arm.
SMITHSON BUYS INTO FEVERTREE
Shares in carbonated drinks-maker FeverTree (FEVR:AIM) have had a quiet quarter after tumbling 30% during May and June due to concerns that summer trading would be weaker than hoped.
When the company announced its results in July the shares dropped sharply as UK sales were up just 5% on last year. However, given last year’s unusually hot summer and the effect this had on sales, the shares soon recovered as investors turned their focus to the potential for sales to grow in the key US market.
The US mixer market is many times the size of the UK and sales growth seems to be accelerating with the launch of new products and brand tie-ins.
Interestingly, we note that popular investment trust Smithson (SSON) took a position in Fevertree in July. Its approach is to invest in high quality businesses with a view to holding them for the long-term.
DEALING WITH HEADWINDS
Shares in On the Beach are still sitting higher than our entry price despite two setbacks this calendar year. The stock took a big hit in August when it revealed that consumers were delaying their holiday purchase due to Brexit uncertainty.
Thomas Cook’s collapse is also causing a near-term increase to costs as it helps customers organise alternative travel arrangements.
Analysts at investment bank Berenberg believe On The Beach has the opportunity to deliver as much as five years’ worth of growth in 12 months now that Thomas Cook has been removed from the holiday market.
However, this is a medium-term opportunity and On The Beach might first have to clear some short-term hurdles, particularly as it could be difficult to rebook customers previously booked to fly with Thomas Cook’s airline onto alternative flights if prices have shot up. These individuals may cancel bookings altogether and so On The Beach would lose out.
WAITING FOR NEWS
Elsewhere, Hollywood Bowl (BOWL) hasn’t updated on trading since issuing half-year results on 23 May. However, it did say in August that Rochdale would be the third test site for its new golf concept called Puttstars. It is too early to tell how this brand could enhance earnings. The company has historically updated the market on trading every October so we may get some news very soon.
New problems caused by a fault in its Trent 1000 engines have cast a cloud over Rolls-Royce (RR.). This will frustrate Boeing’s hopes of getting its 787 planes, grounded by the glitch, flying again and it has done precious little for investor confidence.
DISCLAIMER: Editor Daniel Coatsworth owns shares in Smithson referenced in this article