21/05/2023

Recession

Although this is supposed to be the Week in Small Caps, there is normally a general, slightly related opening paragraph. This week, I am referring to the lead article in yesterday’s Telegraph (of course), which referred to Chancellor Jeremy Hunt’s comments of the country being in danger of talking itself into a recession. The additional point was that inflation is the enemy. However, it looks like it will be self inflicted inflation, higher interest rates and higher taxes that will eventually do the real damage. Ironically, even after all that it may be that what is being lobbied for in the mainstream media, beating us into submission to re-join the EU, may still not happen.

Keir Starmer

This is even if Keir Starmer becomes Prime Minister, which seems highly unlikely. In most cases over the post war period, if you did not know a Labour leader would win beforehand, he would not. We knew for sure that Tony Blair would win in 1997, and we knew Kinnock would never win. Even in 2023 it seems Starmer is in the Kinnock camp, and the nearer the election comes, the more he will adjust his policies to make sure he does not prevail.

Chill Brands

Speaking of talking the country down, it was interesting this week that some of the sharpest risers were companies which have been battered and bruised by the bears. Now for some reason, they appear to be rising from the ashes. Perhaps the most satisfying, if you like to see growth companies succeed, rather than just make money from shorting and / or enjoying retail investors losing money, is Chill Brands (CHLL).  The shares are up nearly 50% on the week, and one hopes that more than a bear or two has had their paws burnt. No doubt they will desperately try and exaggerate the negative, omit the positive, and defame the company in general. But whether you are a bull or a bear, you would have to concede that rather than rolling over, management at the company have really made the effort to turn this around.

Supply@Me

Another stock which has been in the sights of the bears, and has had a 60% jump this week, is Supply@ME. The onslaught here over the years has been so vitriolic that one wonders whether even the mother of the CEO might have sold her stock.  The reality of small companies is that win or lose the timeframes are going to be much longer than many on the stock market are expecting.

Cornerstone

A stock where some might be expecting a turnaround like that of the stocks mentioned above, is Cornerstone FS (CSFS). This is a company I have actually just had a request to look at. The key points as far as potential recovery is concerned are the improved margins and sharp rise in customer numbers. But the secret here as far as this is a recovery play is whether the market has factored in and swallowed the historic performance, and is looking to fundamental recovery? Judging by the chart, it looks as though it has, and the worst is over, especially while above 6p.

Stock of the Month

Finally, this time last week I was penning an article, the first in my Stock of the Month series. The idea behind this is that there is a decent implied time window, and of course, a short timeframe to see if the stock delivers the goods. This is unlike the stocks of the year, where there are a lot, and they can swing in price wildly over the course of 12 months. Shares of Arrow Exploration are up around a fifth on the week, boosted by the news that came out on Monday regarding the CN-1 well, which effectively de-risks the company. Indeed, if there will be any mantra associated with the Stock of the Month, it will be trying to make sure there is no downside for both the fundamentals and the share price.

What was just as exciting to a chartist though, is that after 12 months the shares have finally broken out of a 14p trading range (7p to 21p), something which implies at least this much upside from the 21p breakout level. To add extra spice, it can be the case that one sees breakouts of as much as three times the former trading range, after an extended logjam. But perhaps it is better just to go for a modest upside initially, and that the stock remains above the 21p level.