Sell Alert: it’s time to sell three winners from the portfolio
8th August 2023 |
We’ve decided to sell three profitable holdings from the Small Cap Investigator model portfolio: Aurubis AG (DE: NDA), Watsco Inc (NYSE: WSO) and Yara International (OL: YAR).
Aurubis AG (DE: NDA)
On Monday, Germany-based copper smelter and recycler Aurubis AG (DE: NDA) reported results for the first nine months of fiscal 2023 that saw falling revenue that also missed expectations.
Aurubis said revenue for the nine months to 30 June fell to €12.95 billion from €14.28 billion in the same period last year.
Operating pretax profit was €406 million, down from €426 million, the company added.
Analysts had expected Aurubis to report a nine-month operating pretax profit of €405 million on revenue of €13.02 billion, according to consensus estimates provided by the company.
Aurubis faced headwinds from lower results in its metal operations with declining metal prices, lower sulfuric-acid revenue resulting from reduced prices and production and weaker demand for flat-rolled products.
Although the company’s investment plans should lead to a structural rise in earnings over the medium term, I’m worried that the short-term could be marked by concerns over a drop in activity in key industries as well as rising costs amid persistent inflation.
With the shares turning bearish since the results were released, let’s protect our profits and SELL.
Action to take: SELL Aurubis AG
Ticker: DE: NDA
Current price: €75.76
Entry price: €67.32
% gain/loss: +12.54%
Watsco Inc (NYSE: WSO)
Second-quarter results for heating, ventilation, and air conditioning (HVAC) distributor Watsco Inc (NYSE: WSO) also recently disappointed, causing the shares to pull back a little to around 21% above our entry price.
Both earnings and revenues missed expectations, while the bottom and the top lines also declined year over year.
Watsco reported second-quarter net income of $172.8 million, or $4.42 per share, 10% below Q2 2022 and down from expectations of $4.87 per share.
The heating and cooling company also posted revenue of $2 billion in the period, down 6% year on year and below expectations of $2.15 billion.
The downtrend was caused by delayed product availability, with the company estimating about $75 to $80 million of sales being impacted by delays. Moderate pricing as well as low volumes added to the weak performance, while temperate weather conditions also caused a delayed start of the summer selling season, which in turn affected sales.
Although Watsco’s gross profit margin shows sustained strength, it’s concerning that HVAC shipments could slip this year. The shares have been on a fine run this year so I think it’s time to get out before our hard-earned profits are erased.
Action to take: SELL Watsco Inc
Ticker: NYSE: WSO
Current price: $357.57
Entry price: $294.73
% gain/loss: +21.32%
Yara International (OL: YAR)
At the end of June, we moved Yara International, one of the world’s largest producers of nitrogen-based mineral fertilisers, to a HOLD in the model portfolio amid concerns over demand.
These worries haven’t gone away, despite a subsequent rise in the share price from around NOK 370 to NOK 409, 2% above our NOK 398.80 entry point.
As we wrote, farmers had been delaying purchases of fertilisers due to the uncertain economic outlook and high prices last year, contributing to falling fertiliser prices this year.
Although there are signs that market conditions are starting to improve, I’m concerned global consumption may take years and not months to fully recover, so let’s again sell out of our holdings while we remain in profit.
Action to take: SELL Yara International
Ticker: OL: YAR
Current price: NOK 409.50
Entry price: NOK 398.80
% gain/loss: +2.68%
All the best,
James Allen
Co-editor, Small Cap Investigator
