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Gas, shipping, coal: hot themes drive investors wild
Investors have been spoiled for themes that could act as share price catalysts of late.
Sometimes you need to act quickly as often the big share price movements have already been made before the theme hits the mainstream news. That shouldn’t stop you looking, as many trends can remain intact for longer than you think.
There are currently some clear trends relevant to the stock market, including a surge in prices connected to natural gas and shipping. Tufton Oceanic Assets (SHIP) has been a stock to play the latter trend with 40% of its portfolio in container ships. Market dynamics have worked in its favour and the shares are up 45% year-to-date.
If you’re interested in playing a theme, ask the following:
Is this a one-off event?
If a product or service is going up in price, which stocks will benefit?
Will this price hike cause the end-user to seek alternatives? If so, who will benefit?
Once you’ve found a relevant stock, how much good news is already in the price?
Serica Energy (SQZ:AIM) has been a go-to stock to play higher gas prices. Indeed, the company spelled it out in a statement on 2 September saying: ‘We are immediately benefitting from the current high gas prices.’
Shares in Serica opened at 169p on the day of that comment and they’ve since risen to 187.4p, a gain of 11% as gas prices have continued to appreciate.
Investors sometimes must take a leap of faith when trying to play a live topic such as rising commodity prices. It’s always worth looking at the health of a company linked to this theme and asking if it would still prosper if the current share price catalyst fades away.
Many people risk losing money fast if they back a highly indebted business that only looks good if prices stay much higher permanently. Most of the time with commodities, prices are liable to pull back after a strong run as supply and demand balance out. Be prepared to reconsider the trade once the trend loses momentum.
The spike in natural gas prices has forced several fertiliser companies to reduce production due to concerns about profit margins. Supply shortages could lead to farmers being short of fertiliser which could negatively affect crop yields and therefore hurt food supplies. Markets will be watching every move in this space, looking at alternative fertiliser products and the companies that make them.
Coal prices are shooting up thanks to increased industrial activity globally and coal being an alternative power source to gas as prices in the latter skyrocket. Interestingly, Anglo American’s (AAL) coal spin-off business has not been the flop on the stock market that so many people predicted. Thungela Resources (TGA) has tripled in value since June.
Finally, energy storage is likely to become a hotter theme following disruption to energy supplies caused by a fire at Britain’s main electricity subsea cable. Their share prices may not be soaring now, but such an event could prompt investors to look more closely at battery storage funds such as Gore Street (GSF) and Gresham House Energy (GRID).