Sell Alert: it’s time to sell three stocks
17th March 2023 |
Today we’re taking the tough decision to let three stocks go: one at a profit and two at a loss.
These are Norsk Hydro, SDCL Energy Efficiency Income Trust and Lyxor World Water ETF.
I’ve started to worry about the direction of travel for all three, and I think we might be best freeing up some capital to focus on opportunities elsewhere.
I’ll go into more detail below.
Norsk Hydro (OL: NHY)
Norwegian aluminium producer Norsk Hydro (OL: NHY) has fallen from around NOK 82 in early March to around NOK 71 now and I’m worried further falls could be on the cards.
Indeed, the company recently warned that the market remained challenging for aluminium smelters despite a recent drop in energy prices.
The company, along with several other European primary aluminium producers, announced significant production curtailments over the course of 2022, with European gas prices reaching an all-time high of over €340/MWh in August 2022.
Combined capacity at Hydro Karmøy and Hydro Husnes in Norway was temporarily reduced by 110,000-130,000 tonnes, while the company also announced it would stop primary aluminium production at the Slovalco plant in Slovakia because of high energy costs.
However, despite a fall in energy prices, the stock doesn’t seem in any hurry to reopen the idled plants due to concerns over demand.
“We will not ramp up purely through power prices falling again. What will cause us to ramp up is a comfort and visibility of demand being stronger than expected when we curtailed,” the company’s chief financial officer Pål Kildemo told Fastmarkets on 14 February.
“A lot of the market is still looking for signs of physical demand support from China to drive the overall macro picture”, Kildemo added.
“We are [expecting stronger demand from China in 2023] on the back of them opening faster than we had expected. But we need to see some more concrete signs in order to maintain the development that we have seen in the pricing now, otherwise you risk some weakness again,” he said.
With the picture looking a little less rosy by the day, I think it’s time to sell at around a 6% profit.
Action to take: SELL Norsk Hydro
Ticker: OL: NHY
Current price: NOK 71.30
Our buy price: NOK 66.94
% gain/loss: +6.51%
SDCL Energy Efficiency Income Trust (LON: SEIT)
SDCL Energy Efficiency Income Trust (LON: SEIT) rose to over 110p in November, but was last seen hovering above 87p, about 12% down from our entry point.
SDCL is an investment company focused on assets in the energy efficiency sector, such as electric vehicle (EV) charging infrastructure and geothermal and biogas projects.
The investment trust released a lengthy company update on 14 March that included details on its market outlook and pipeline that – I won’t lie – didn’t really move the needle for me.
Of note was an expectation that the trust would “benefit from strong policy tailwinds encouraging energy efficiency investment throughout the markets in which it operates”. These markets include, of course, the UK, where it’s fair to say the direction of travel isn’t wholly positive.
In the Spring Budget this week, many in the fleet and EV industries were left disappointed due to a notable absence of support to strengthen the UK’s electric vehicle sector and charging infrastructure. In fact, there was not much substantive on energy efficiency at all.
SDCL has about 15% of its assets in the UK, so its home market is important though not totally core to performance.
Still, Jonathan Maxwell, chief executive of SDCL, has previously pleaded – correctly – for chancellor Jeremy Hunt to “put an efficiency lens over everything”. Again this hasn’t been forthcoming and I think the markets might continue to punish the trust as a result.
SEIT continues to trade at a discount to its NAV, meaning that, right now, it costs less to buy the shares than the underlying investments are worth. But with now no immediate sign that will reverse, I think it’s time to get out.
By the way, the shares were ex-dividend on 9 March so the 1.5p third quarterly interim dividend is locked in assuming you were still shareholders on the register as at the close of business on 10 March.
Action to take: SELL SDCL Energy Efficiency Income Trust
Ticker: LON: SEIT
Current price: 87.20p
Our buy price: 98.80p
% gain/loss: -11.74%
Lyxor World Water ETF (LON: WATL)
Lyxor World Water ETF (LON: WATL), which allows investors to track the world’s largest companies involved in water supply, water management and treatment, has fallen from over £48 in early February to £44.96 now.
That puts it marginally down in the portfolio.
The fund tracks distribution, utilities, equipment and treatment of all things related to water.
The ETF has found support in recent months from strong performance from its two largest constituent holdings: plumbing and heating products distributing company Ferguson Plc and plumbing supplies maker Geberit AG, which together comprise over 15% of the ETF.
However, both stocks have fallen over the last month and both – let’s face it – aren’t really central to the original premise of the recommendation: tackling the water crisis.
I can understand why you might like to continue to hold but, with momentum against the ETF and some of its core holdings having little to do with water sustainability, I think it’s time to sell.
Action to take: Lyxor World Water ETF
Ticker: LON: WATL
Current price: 4,496p
Our buy price: 4,535p
% gain/loss: -0.86%
All the best,
James Allen
Co-editor, Frontier Tech Investor
