Amid all the volatility there has been of late on the London Stock Exchange, it is worth remembering that for the past six weeks shares have been trading within a solid and quite narrow range. There is plenty to be quietly confident about.
Since the middle of August, the FTSE 100 index has bounced around between 5,900 points and 6,230, a range of just over 300 points. OK, it doesn’t feel like it, especially on those days when the main index slumps by more than 100 points. Moves of 1% in either direction have become commonplace.
This is not a new phenomenon. The index does tend to move for weeks, even months, within a range before breaking out to start a new range. What is changing is the rise of computer-driven trades that tend to exaggerate the daily movements.
The gyrations provide buying opportunities for long-term investors like myself who are prepared to hold our nerve and carry on collecting dividends in the meantime. Remember the words of the song: You’re up, you’re down, you’re in there strumming, back in the old routine. Life for investors is not as abnormal as it sometimes seems.
Sainsbury’s: Shareholder and Consumer
I am both a shopper and shareholder at Sainsbury (SBRY), so it was a very pleasant surprise to see trading figures far better than either I or the market expected. While like-for-like sales in the 16 weeks to September 26 were down 1.1% excluding fuel, that was not the disastrous drop that many feared. Total sales, again excluding erratic fuel sales, were actually 0.3% higher. The growth of online orders means like-for-likes are less important as a measure of success.
Volumes were actually higher but the supermarkets price war took its toll. I have been agonising over selling at least some of my Sainsbury’s holding, which is substantial in terms of my overall portfolio, but have missed the boat several times and decided to stay on. My worries over the departure of Justin King, the chief executive who turned Sainsbury round, have been compounded by the sight of gaps in the shelves at my local store.
Sainsbury shares fell from 285p to 225p between April and September while I dithered. Less than two years ago they peaked at 410p, a fall only partly assuaged by the continued dividends. While I am more confident now that the pay-out will not be reduced, I think the 30p leap in the shares immediately after the figures this week was quite far enough. I wouldn’t chase them any higher just yet.
While Sainsbury managed a 12% surge on its figures, plumbing and building supplies group Wolseley (WOS) managed a 12% drop despite reporting higher sales and higher margins. The big worry is that the boilers and heating market in the UK has flattened out while industrial sales in the US are stalling.
The shares had admittedly done very well over the previous 12 months, rising from £30.57 last October to £42.20 last weekend but they were already well down from the July peak of £43.46. This was a case of a sharp fall in a share price presenting a buying opportunity. A partial rebound the day after the crash left Wolseley still offering good value.
Lower Fuel Prices Fail to Boost FirstGroup
The latest trading update from bus and train operator FirstGroup (FGP) worries me. If you thought that lower fuel prices were a godsend to transport companies, that’s not how it’s working out at FirstGroup.
Losing two UK rail franchises was unfortunate, as like-for-like this is the best growing part of the business. Canadian buses have been hit by a reduction in workers being ferried to work on oil sands; US schools services are struggling to recruit experienced drivers; Greyhound intercity has seen a decline in passengers; UK buses are taking a one-off £7 million hit.
The shares are down from 127p in June to around 100p now. There are some positives in the update but it will take a lot more to convince me that FirstGroup has turned the corner.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice. His views are not necessarily the views of Morningstar UK.