Sell Alert: it’s time to sell two stocks
26th June 2023 |
We’ve decided to sell two holdings from the Small Cap Investigator model portfolio: Fortescue Metals Group Limited (ASX: FMG) and Rize Sustainable Future of Food UCITS ETF (LON: FOGB).
We’re selling the former at a tidy 23% profit and the latter at a disappointing 14% loss.
Let me explain.
Fortescue Metals Group Limited (ASX: FMG)
Australian iron ore giant and green hydrogen hopeful Fortescue Metals Group Limited (ASX: FMG) has risen from AU$19 on 25 May to AU$21.34 now, putting it around 23% up in the model portfolio at the time of writing.
The stock has taken direction from a stronger iron ore price, which has been lifted by anticipated stimulus measures in China to support the flagging economy.
However, a still-uncertain recovery in China means that the market for the steelmaking ingredient is likely to remain volatile for the foreseeable, which could have a negative impact on FMG.
In a commodity report published on 8 June, ANZ commodity strategists Daniel Hynes and Soni Kumari said “muted steel demand from China’s property markets during the peak construction season is a key headwind for iron ore and coking coal demand.”
With Fortescue a huge producer of iron ore, this means our hard-won profits are certainly under threat.
Of course, perhaps the main reason for our investment was Fortescue’s decarbonisation plans, which include the production of green hydrogen, green ammonia and high-performance batteries.
Indeed, the business is working on a global portfolio of potential green energy projects, pursuing possible locations in Canada, the US, New Zealand, Australia, Europe, Egypt, the Kingdom of Jordan, Brazil and more.
However, it’s fair to say that, despite a lot of fanfare, there remains scant detail on which projects it may develop and how they will attract funding.
With so much uncertainty surrounding the company, I think it’s now prudent to protect profits and SELL.
Action to take: SELL Fortescue Metals Group Limited
Ticker: ASX: FMG
Entry price: A$17.30
Exit price: A$21.34
% gain/loss: +23.35%
Rize Sustainable Future of Food UCITS ETF (LON: FOGB)
The Rize Sustainable Future of Food UCITS ETF (LON: FOGB) has fallen from 380p in early February to just 323p now, putting it 14% below our entry price of 378.48p.
The ETF currently has 52 holdings involved in the production of sustainable food and packaging, with plant-based foods, precision farming and fertiliser manufacturers among the targeted sub-sectors.
Quite simply, the underlying index has shown no signs of moving back in a positive direction even though it is now is weighted towards high-quality or profitable transition companies with large balance sheets contributing to environmental objectives in the food system.
As such, rather than wait for a turnaround, I think we should get out of the ETF before the price moves further away from us.
Action to take: Rize Sustainable Future of Food UCITS ETF
Ticker: LON: FOGB
Entry price: 378.48p
Exit price: 323.46p
% gain/loss: -14.54%
All the best,
James Allen
Co-editor, Small Cap Investigator
