Our 2022 stock portfolio rises against a volatile market backdrop
Despite the best efforts of quite a few holdings, our ‘stocks for 2022’ portfolio is lagging the FTSE All-Share index since being launched in late December 2021. We’re up 2.4% versus a 3.2% gain from the benchmark.
Nevertheless, to be in positive territory is a good achievement given how volatile the first three months of the year have been for stock markets, and the FTSE All-Share index has benefited from some weighty commodities-related exposure.
Our selection contains three overseas-listed stocks and so it makes sense to also compare the performance against a global equity benchmark rather than simply a UK one. Our 2.4% share price return comfortably outperformed the MSCI World index (comprising the developed world’s largest companies) which was down 4.2% in the first quarter.
PRESSURE ON CONSUMER-FACING STOCKS
It’s no surprise that two of the main detractors from performance in our portfolio are consumer facing, given an existing cost-of-living crisis has been exacerbated by the war in Ukraine.
Investors are clearly concerned about people’s willingness and ability to spend on their pets, judging by the 20.7% decline in specialist retailer Pets at Home (PETS). However, we should emphasise that spending on pets is non-discretionary which would suggest Pets at Home’s earnings might be more resilient than other areas of retail such as electronics and casualwear.
The replacement for the outgoing Pets at Home CEO Peter Pritchard, Sky alumni Lyssa McGowan, looks a decent appointment and a third quarter update in January contained upbeat comments from management.
The 10.6% share price fall in casual dining outfit Loungers (LGRS:AIM) is around the half the magnitude of that seen at Pets at Home, perhaps reflecting a perceived greater willingness for people to prioritise to spend on experiences over ‘stuff’, after a period when Covid restrictions prevented them from doing so.
This also seems to be in evidence at Jet2 (JET2:AIM) which is one of our best portfolio performers despite the impact on the travel sector of geopolitical tensions and surging fuel costs.
The company has hedged its exposure to higher fuel prices for the current summer holiday season and Numis analyst Richard Stuber observes: ‘Jet2 as a key beneficiary of the rebound in leisure travel given its strong liquidity and exemplary customer track record.’
ENERGY PRICES BOOST
Surging energy prices, sparked by Russia’s invasion of its neighbour, have benefited IOG (IOG:AIM), which is up 28.2% since we said to buy last December.
The North Sea firm, which produced its first gas in March, has been beset by teething problems on its fields, as well as some reserves downgrades and delays to maiden output. However, it should now start generating meaningful cash flow, underpinned by an exceptionally strong natural gas market.
The Ukrainian conflict and the risks to the global economy and supply chain disruption, plus a continuing shift out of expensive growth stocks into ones that are trading on lower valuations goes some way to explain the share price decline in French electronics specialist Schneider Electric (SU:EPA). Annual results (17 Feb) included guidance for organic growth of up to 9% in 2022.
Sustainable wood technology outfit Accsys Technologies (AXS:AIM) reported a final investment decision had, after a longer-than-expected wait, been made to proceed on its US joint venture with Eastman Chemicals.
However, less positively the company experienced some production downtime at its Arnhem plant, which means earnings for the March 2022 financial year will be at the lower end of consensus forecasts.
Shares in pharmaceutical giant Roche (RO:SWX) may not have delivered strong share price gains in the past quarter but the Swiss firm has ultimately proved defensive during the recent global market sell-off even if there have been some ups and downs along the way. It’s a similar story at Google-owner Alphabet (GOOG:NASDAQ), which like Roche is broadly unchanged on its 2021 year-end level.
At one point an indiscriminate sell-off in US technology firms saw Alphabet’s shares down nearly 10% on our entry point. They have since recovered sharply, despite the threat posed by tighter regulation whereby a new law proposed by the European Union would clamp down on anti-competitive behaviours among big tech firms.
BIG ADVANCE FOR LSE
Food ingredients expert Tate & Lyle reported a near-20% surge in core business revenue for the third quarter to December 2021 and also reassured the market it was on track to complete the sale of its North American Primary Products business on time. The deal was due to complete at the time of writing.
London Stock Exchange reported stronger than expected full year results on 3 March, with adjusted earnings of £3.28 billion. The company also announced the $1 billion disposal of its securities execution and post-trade processing services businesses to a consortium of buyers (21 Mar).