Spring brings the first daffodil, the first cuckoo and (this year for the last time) the first rumour that Bruce Forsythe is quitting Strictly Come Dancing. Then we have the first press article on the supposed benefits of selling shares in May.
I spotted the first ‘sell in May’ article just five days into the month and by tradition I always follow it with my first ‘this is bunkum’ column on Morningstar at the earliest opportunity. For the record, in the majority of years you do badly if you sell shares in May and stay out of the market until the St Leger is run in mid-September.
It is true that shares tend to fall back in May itself but May does not set the trend for the summer. On the contrary, it presents a good buying opportunity. I am not normally a contrarian investor, daring to bet against the market, but for May I am quite prepared to make an exception.
You sell in May if you want to. I see it as an opportunity to invest the current year’s ISA allowance.
Shop till they Drop
It is very difficult to know what to do about Sainsbury (SBRY). I have no doubts about Tesco (TSCO) or Morrison (MRW) – I am not in the least tempted to buy their shares as they feel the squeeze from budget chains Aldi and Lidl. Sainsbury, however, is not a clear cut case.
Supermarkets suffer from time to time from a bout of price cutting that inflicts pain on the whole sector, not to mention the unfortunate suppliers who get squeezed mercilessly. It used to be Tesco calling the shots but such is its fall from grace that the suicide pill has been passed to Morrison. It’s latest slogan is ‘Love it – love it cheaper’. Pity you can’t say the same about the shares.
Morrison’s trading update this week was truly awful with total sales down 4.2% and a further loss of market share. The shares actually rose 5.92p to 196.72p on the day of the announcement. Was the market expecting even worse?
I still feel much happier holding Sainsbury shares rather than Tesco or Morrison. Sainsbury has found a niche offering slightly better quality at pretty much the same prices and it has continued to grow sales for some time.
Figures this week were admittedly a little disconcerting. Underlying profits in the year to mid-March were up a reasonable if unspectacular 5.3% but like-for-like sales have flattened out and are likely to stay flat for the rest of this year, Sainsbury says.
I don’t put too much store by like-for-like sales at any retailer that is growing its online presence. Online sales are bound to detract to some extent from store sales. Of greater concern is the impending departure of highly successful chief executive Justin King and whether his successor can build on his legacy.
Sainsbury shares have fallen back heavily from their overvalued level earlier this year but they are still above my buying price and I have received dividends on top. I’m told that Sainsbury was the most heavily shorted share on the London Stock Exchange this week, indicating that speculators expect a further fall in the share price.
I don’t blame anyone for selling out of Sainsbury but it is worth remembering that when short sellers start to close their positions the share price will be pushed higher again. I am staying in.
Balfour Beaten Up
You ignore the rule that profit warnings come in threes at your peril. I had a modest holding in Balfour Beatty (BBY) and had benefited from several dividend payouts when the company issued two profit warnings and the share price fell.
I believed that the problems would be overcome so I added substantially to my holding at a lower price but I did limit my purchases just in case a third warning appeared. At least I got that much right.
Balfour shares did in fact rise again, climbing above my original purchase price, and I was beginning to regret my caution. This week the third warning came, 18 months after the first, and the chief executive has been made to walk the plank.
Balfour is still profitable – just not as profitable as it had hoped. Big infrastructure projects will start to come through – just not as soon as it had hoped. I am holding onto my shares, although I am now nursing a loss on all three of my purchases, but I will certainly not be topping up again anytime soon.
