Investing

Week 26: Brace yourself… The perfect storm might be on its way!

Background

The lockdown is literally over and the governments have almost opened the economies around the world. Now, we are on our own – work hard and earn your living, right? I am sure you don’t believe that it is as simple as I said. The second wave of infections are getting more visible in different countries, government bailout money disappearing while production has not restarted, more job losses from the management to keep the businesses afloat – all pose devastating consequences to the economy, and ultimately to our investment portfolios. I am afraid that we don’t have to wait for a long time to see the effect; as soon as the nations and businesses start their second-quarter reports, it will start showing the wreckage.

Market Summary

The UK market was down by 1.9% over the last 7 days, while the hospitality industry dropped by 5.7%. Unfortunately, it was a woeful week for our portfolios. My portfolios under-performed the market and were down by an average of 3.9%.

7-Day Return1-Year Total ReturnPE Ratio
UK Market-1.9%-10.5%15x
United States Market-0.5%5.6%16.1x
UK Hospitality-5.7%-35.4%18x

Due to a busy week and spending yesterday with friends, I didn’t have enough time to write the market summary of the week. I will jump directly to my portfolio updates.

Main Portfolio Summary

Both of my main stock and SIPP portfolios dropped by 3.8% last week. A few stock price crashes caused misery to my portfolios.

  • Despite restarting the flights, EasyJet (LSE:EZJ) completed a £419m capital raising initiative to shore up its finance to face the crisis a few months ahead. The board explained that this initiative will help the airline’s credit rating higher when it will need another refinancing next year. The stock dropped a massive 18.3% last week.
  • In my last post, I was hoping that Royal Mail Group reporting won’t be as bad as everyone expected, and we might have a better week. Blimey!  While revenue for the year was up 3.8%, profits were well down. Adjusted profit before tax, for example, was down 31% to £275m. Meanwhile, basic earnings per share (EPS) decreased by 36% to 19.6p. Dividends were well down as well. For the year, the total dividend was just 7.5p (compared to 25p last year), after the board decided not to recommend a final dividend for 2019-20. It expects its UK division (UKPIL) to be “materially loss-making” in 2020-21. Furthermore, it said that it plans to pay no dividend in 2020-21. Royal Mail also provided two potential scenarios of how the business could perform in 2020-2021. In the first scenario – which assumes a UK GDP decline of 10% for 2020-21 – UKPIL revenue is likely to be £200m to £250m lower year-on-year. In the second scenario – which assumes a deeper recession – UKPIL revenue could be £500m to £600m lower year-on-year. The share price dropped a staggering 14% on Thursday before it covered slightly on Friday. RMG is one of the largest holdings in my portfolio, and I was very close to selling on Friday. I might trigger the sell button this week.
Week 26 – RMG Share Price Crash
  • Both my major oil producer stocks, Royal Dutch Shell (LSE:RDSB) and BP (LSE:BP) dropped more than 4% last week. Addition to that, BP announced in the previous week that it would slash up to $17.5bn (£14bn) from the value of its oil and gas assets, and may be forced to leave new fossil fuel discoveries in the ground after its own forecasts found the Covid-19 pandemic may affect the world’s oil demand for the next 30 years. It also announced plans to cut 10,000 jobs worldwide, representing about 15% of its 70,000 staff, by the end of the year.
  • Meggitt (LSE:MGGT) and other ex-FTSE 100 companies including EasyJet, Carnival (LSE:CCL) and Centrica (LSE:CNA) have started the bumpy journey in the lesser-known FTSE 250 index this week.
  • The online CFD trading provider Plus500 (LSE:PLUS) makes more money when the market is volatile, and it was a good week for the company, up by 6% week-on-week. I am still considering selling the stock, too, as discussed previously.
Week 26 – PLUS500 (LSE:PLUS) Share Price vs Fair Value
  • My only US stock in these two portfolios, Microsoft (NASDAQ:MSFT) has announced to close all its retail stores, Microsoft Store, around the world. This initiative will cost the company about $450M. However, the tech giant will transform some of its stores, London, NYC, Sydney and Redmond, to Microsoft Experience Centers to showcase its innovations. I don’t know how busy Microsoft stores were even before the pandemic as I only visited its Oxford Street store. It is at the heart of the tourist hotspot. On the contrary, Apple is the king of the high street; it offers an excellent in-store experience (Apple geniuses are often too snobby to my taste) and buzzing with customers.
Microsoft Oxford Street Store
  • Hikma Pharmaceuticals (LSE:HIK), one of the FTSE 100’s “boring and stable” company’s share price dropped last week Tuesday. I combined my dividends with fresh cash to a small position in pharma. I am very positive about the company and explained my reasons in an earlier post.
Why did I buy shares in Hikma Pharmaceuticals on Tuesday?
Why did I buy shares in Hikma Pharmaceuticals on Tuesday?

Recently, I started investing funds in my SIPP portfolio. Here is their current status:

FundsGain / Loss
Baillie Gilford America (Class B) Acc20.37%
Legal & General Global Technology Index (Class I) Acc10.85%
AXA Framlington Global Tech Fund (Class Z) Acc6.14%
UBS US Growth (Class C) Acc4.86%

Freetrade Portfolio Summary

My Freetrade Portfolio also took a hit last week and dropped by 3.8%. It is currently sitting at 7.89% profit. I haven’t made any change to the portfolio since 5th June when I bought ConocoPhillips stock. 

Week 26 – Freetrade Portfolio Valuation
  • Beyond Meat (NASDAQ:BYND) was the worst performer of the week. Shares of Beyond Meat fell 7% in morning trading after McDonald’s decided to stop testing a burger made with its patties in Canada.  The chain said it has no plans to bring back the menu item at this point. McDonald’s has yet to test a vegan burger in the U.S.
  • After weeks of upside, the betting industry received bad news from the US. While betting on sports has been legalized in nearly two dozen other states, including New York, New Jersey and Oregon, Californian lawmakers have shelved legislation for the year. Two years ago The US. Supreme Court opened the door for states to allow sports betting. William Hill (FTSE:WMH), my biggest position in this portfolio, dropped by 8% after it announced to raise £200m to ease the lockdown as it looks to capitalise its position in the US sports betting market. In a largely positive trading update, the firm said US sports staking benefited significantly from the availability of alternative sports and the resumption of UFC and NASCAR in May.
  • After rising for three weeks (in my portfolio), Cloudflare (NAQDAQ:NET) dropped about 4% last week. This drop was in line with the other tech stocks. Its rival Fastly is the fastest-growing stock in 2020. According to many analysts, despite a fantastic rally, Cloudflare still has room left to run. I am planning to sell one or more non-tech stocks from the portfolio and top up my current Cloudflare position. 
Cloudflare (NASDAQ:NET) – Share Return vs Market Volatility
  • JD Sports subsidiary Go Outdoors called the administration before it bought back the business for £56.5m. It has 67 stores and 2400 staff. JD Sports said it determined that the business had a potential future within the wider group “if fundamentally restructured”. This will give JD Sports power to negotiate contracts with the landlords and contractors.
  • Currently, I have 28 different stocks in the portfolio, of which I received ten free shares in eight stocks. I am planning to sell these free stocks along with a number of my purchases to trim my total number. That will allow me enough time to monitor them individually.

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Trading212 Portfolio  Summary

My Trading 212 portfolio suffered the most out of all four portfolios. I expected it as I purchased most of the shares just before the second wave infection spread.

  • MGM Resorts (NYSE:MGM) dropped more than 13% last week as the infection rate in the US reached the highest level. It was a small but risky bet I took. However, The US politicians and lawmakers are very different from the British and Europeans. European leaders would consider shutting down the economy if the second wave gets very serious, while Trump and his advisors vowed to keep the economy running. I might consider topping up my position if the infection rate shows some promise. 
  • I mentioned last week that I took a small position at Facebook (NASDAQ:FB). On Friday, Unilever announced that it will boycott all its advertising on Facebook and Twitter for the rest of the year, citing concerns about the proliferation of divisive content and hate speech on the platforms in the lead-up to the presidential election. This also includes Instagram. At this news, the Facebook share price dropped 8% on Friday. I sold my Premier Oil shares for a small profit and topped up my Facebook holding. Facebook’s profit is too exposed to advertising revenue. However, Facebook took quick action and released its plan to moderate and improve the situation. Additionally, it has been investing in different other sectors. Same things happened to Google when 95% of Google’s revenue and profit were generated from ads. Now, Google’s revenue from cloud computing and other means are growing every quarter. In my opinion, it is a safe stock for a long term investment.
  • Marston’s (LSE:MARS) had a very bad week. Its share plunged 10% on Friday after it announced it suffered a £40 million hit to sales. Marston’s posted an underlying pre-tax profit of £9.4 million for the first half of the year ended March 28. This is significantly lower than £34.2 million recorded last year, or a 72% decline in profits. Addition to that, It has been dropped from the FTSE 350 index to FTSE All-Small Index after the reshuffle. Once the pubs are open on July 4, the investors might be relaxed a bit, but it is not looking good for a long term investment. 
Week 26 – Marston’s Debt to Equity
  • Greggs (LSE:GRG) share price dropped 9.5% this week after it recovered some of the losses on Friday. I am very positive about the brand, it’s products and innovation. Although I am at a loss position right now, I will hold and keep adding more stocks in future. 
  • Previous week’s investment at PayPal (NASDAQ:PYPL) was up by 4% last week. The pandemic situation is not getting any better, we will be depending on PayPal for online payments for weeks to come. Additionally, as Wirecard filed for bankruptcy, some of its clients might consider switching to PayPal.

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Next Week’s Dividend Payments

Here is a list of companies that will be paying me dividends next week. 

CompanyPayment DateDiv TypeDiv YieldDiv Amount
Coca-Cola (NYSE:KO)1st JulyQuarterly1.9%41c

Joke of The Day

Conclusion

I decided to hold my cash this month instead of investing. This would boost my confidence in the current situation. Also, it will allow me to observe the market and invest in case the market crashes again.

What is your strategy? Does mine resonate with yours? Please leave a comment to share your investment ideas with the other investors.

Keep Calm & Take a step back

I am an SEO professional, expert in both on-content and technical search engine optimisation. Besides eating, breathing and sleeping SEO, I am passionate about travelling, photography, collecting vintage mobile handsets and philately. I am also keen on financial freedom - saving, investing and passive income.

6 Comments

  1. Carly Griffiths Reply

    Another good blog Jinnat,

    My portfolio is currently 5.60% down overall taking a few harsh hits last week, I also hold Marstons, I sold out of Royal mail just before the drop with out loosing anything luckily, I also hold RDSB but bought quite recently so I am not to far down with them.
    I have spent the weekend investigating my stocks and I have 12 that I would like to sell as soon as they improve, I would stand to loose quite a bit if I sold now. Always a bit awkward to know what to do. We can only really watch closely and make decisions as we go along.

    Thanks for sharing another good informative post.

    • Jinnat Ul Hasan Reply

      Thanks, Carly. The market outperformed me last week, but I am doing better than the market indexes this week. Hopefully, we all will have better days in the coming weeks.

  2. Terry Vaughan Reply

    A excellent write up and lots of good information and thanks for your hard and have a great week and Take Care and keep Safe

  3. Good read, ride the storm. If theyre solid stock they will turn good 2 years +

    • Jinnat Ul Hasan Reply

      Thanks for your comment, Oliver. Yes, I am trying to build my portfolio as a long term investment. Fingers crossed!

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