SELL Alert: taking swift profits off the table
23rd July 2020 |
First thing today is a SELL recommendation.
Ceres Power (LSE:CWR) entered the portfolio in December 2019. This came right before the world began to crumble around us with one of the sharpest market crashes we’ve ever seen.
I don’t need to cover old ground too much here, you know what happened. Nonetheless, Ceres Power wasn’t immune to the market mayhem. And it went from around 510p in mid-February to a low around 230p in mid-March.
We stuck with the stock as it looked like the markets in general were well oversold. Ceres Power was one of the stocks that was able to quickly rebound from those March lows and in fact stormed to new highs, just under two weeks ago.
On 9 July Ceres Power hit a high of 674p. But since then the stock has been in a sharp, swift freefall, today trading around 466p. That’s a 30% fall in less than two weeks. What we want to avoid is further falls in the stock that erode the incredible gains that Ceres has delivered, even at a price of 466p.
When Eoin recommended the stock in December, he said, “My 12-month target is 300p and 3-year target is 400p.”
Well Ceres smashed both of those targets within the space of just a few months. And the stock has achieved exactly what it was set out for in the portfolio. With a trading price of 466p that gives it a current gain of 98%.
A return of 98% in just seven months is outstanding for any stock. And it’s not something to be taken for granted. Hence in order to lock in some great, swift profits and to protect the risk of further profit erosion, I’m now recommending to SELL the stock.
Action to take: SELL Ceres Power (LSE:CWR) at market prices.
Corero Network’s buy-up-to price
I’ve been reviewing the buy-up-to price on Corero Network Security (LSE:CNS) and keeping an eye on the stock price since we recommended it almost a month ago now.
And it’s more or less done what we expected. That’s settled down back to a reasonable level after the silly bidding war after our recommendation.
The day after our recommendation, the stock was bid up to 9p. On Tuesday the stock hit an intraday low of 6.77p, very close to our buy-up-to price of 6.45p. And from 9p that’s almost a 25% fall.
I’m obviously aware that not everyone was able to get stock in Corero – sometimes that happens with smaller market cap size stocks. And while the stock hasn’t yet traded back down below our buy-up-to, it has heading that way as expected.
The company put out a decent first half trading update on 13 July, which didn’t see the stock price rocket away. That suggests that for the time being at least, that Corero is around a fair value.
With that said, I have been looking at a level that opens up investment for more of you. But I also don’t want to get carried away and see a repeat of the action after our initial recommendation.
As such, I’ve decided to bump the buy-up-to price on Corero to 7.5p and believe that over the next few weeks that should provide a suitable level to allow you to get some stock in Corero if you haven’t.
What I suggest is that you do not buy the stock if it takes off again – if you miss out after this readjustment of the buy-up-to price, then move on to our other recommendations.
For example, our most recent stock, Spirent Communications, is still trading below its buy-up-to price. WANdisco is below its buy-up-to price. Rolls-Royce, Frontier Developments and Aston Martin are just some others that are currently in open positions and below their buy-up-to price.
I’ll have a brand new recommendation out to you on 13 August that you’ll also have a chance to get a slice of action on.
So again, I’ve decided to raise the buy-up-to price for Corero Network Security (LSE:CNS) to 7.5p. Do not buy if the stock is trading over its new buy-up-to price and we continue to recommend a trailing stop/loss set at 40% below the entry price.
Keep calm and play the long game
Finally, just something that’s worth noting about everything that’s still going on in the world.
Looks like this week will mark the compulsory requirement to wear masks in shops. An interesting development considering the stance previously. It appears as though the powers that be are more than happy to backflip on something as frivolous as face masks, but anything of more serious consequences, such as the mistake that lockdown has been, they will never admit fault for.
But we can’t change history, though we can certainly critique it.
And you won’t find me here giving any government a pat on the back for actions they’ve taken in the last seven months. They’ve all been a bumbling mess that have contributed towards a more dire economic situation than any virus has.
Still, you also need to ensure that whether you are all for masks and lockdowns or whether you’re dead set against them, it is a waste of energy to get in a stir about it all.
I know that’s hard. I mean, I get stirred up on a daily basis about some of the nonsense that’s taking place right now. And I’m a pretty damn placid person. But boy does some of the garbage in the news, on social media and definitely from government officials make my blood boil.
I imagine it does the same for you too.
That’s hard to deal with. It impacts all facets of your life. Including your investments.
That’s why in times like these it’s important to take a step back from everything and maintain some perspective.
In this situation the perspective is to realise that what’s happening right now will not last forever. If you’re not so sure about that, use history as your guide book. There have been worse pandemics than this. And every single one of them didn’t last forever, did it?
This won’t be any different. It will end. And people on the bulk of it have short memories. It will eventually be a distant memory. We don’t know when that might be. But I suggest it will be over faster than people can probably comprehend right now.
I still believe by Christmas we’ll be well past the depths of it and really be starting to ask serious questions of all branches of “leadership” as to why they kicked the economy in the guts so hard.
I think the markets will shift into gear again to move back to far more “pre-crisis” trading environments. When you look at some of the stocks we’ve recommended and we’ve got in the portfolio, there are some that are highly risky, highly contrarian plays for a world where we barely remember coronavirus any more.
These stocks are long-term plays. They’re not designed to return to pre-crisis levels while the crisis still drags on. And that’s what you need to remember when you enter a stock – what was the original rationale for it? More importantly, what do the conditions right now do to impact that particular strategic view? And then after this is over, what are we expecting things to look like for them?
When we’re past this all, then we can really start to properly assess if our strategy worked, or didn’t. I think it will, but that’s no guarantee, hence the inherent risk of the stocks we recommend.
Just remember what we’re all living through now is an anomaly. This isn’t what it’s like most of the time. These are edge-of-the-bell-curve conditions. And they won’t last forever. It’s what you do now, and the strategies you take that make the difference.
Getting wound up by it all is a futile exercise. Making the smart moves and playing the long game, I think is the way to go. If there are opportunities that deliver short-term excellence, like Ceres Power has done, you take those where you get them. But I believe the long game wins this in the end – that’s what I consider to be the winning strategy, and that’s the one we’re taking.
Regards,
Sam Volkering
Editor, Frontier Tech Investor
