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No Point in Panic Selling, Look for Stock Opportunities

THE WEEK: The immediate reaction of markets was a sharp fall in sterling, a rise in the FTSE 100 index and a slump in the FTSE 250, Rodney Hobson stands firm

Rodney Hobson 9 June, 2017 | 10:52AM

Ouch! The outcome of the General Election has left the Prime Minister with egg on her face. Calls for her resignation are growing but it is frightening to think who could possibly become Prime Minister if Theresa May stands down. The Brexit negotiators have been seriously undermined.

Pronouncements can easily be overtaken by events but at the time of writing it looks as if May will continue with support from the DUP, a combination that gives a Commons majority that is, in theory at least, pro-Brexit.

The immediate reaction of markets was a sharp fall in sterling, a rise in the FTSE 100 index and a slump in the FTSE 250, which is more dependent on the UK economy. In fact, the 250 index slumped midweek as well, as some investors saw the writing on the wall rather better than May.

Investors now enter a period of even greater uncertainty. However, that is a reason to look for stock market investments rather than curl up in a ball and hope it all goes away. My wife remarked: “Don’t panic. Things can only get worse!” I think she was joking.

I cannot see any point in panic selling now. Rather one should be patient and look for opportunities to buy when shares in specific companies looks unreasonably cheap or sell when they are unsustainably high. I will use this column to highlight some possibilities. Remember, uncertainty creates opportunities.

Strike me Down

Lightning apparently can strike twice in the same spot, certainly if that spot is RPC (RPC), the plastics products designer and engineering firm. When the previous trading update was issued at the end of March, the shares fell heavily and, in my view, unfairly so I made a modest investment and was soon in profit.

I could not believe my eyes when, this week, full year results were met with a staggering 7% fall in the share price. The doubling of profits was admittedly down to acquisitions but those acquisitions are fitting in nicely and there was some organic growth as well. Revenue and cash flow were better than forecast. The dividend total is up 50% and RPC intends to pursue a progressive dividend policy.

I promptly increased my holding. If I am wrong, the dividend will offer some compensation but I believe the market reaction was way over the top – in fact, in the wrong direction altogether.

Shareholders in specialist media group Auto Trader (AUTO) may have had a similar feeling the following day when their shares slumped 4% in the immediate aftermath of remarkably good results. Revenue and profits rose as more people perused the increased number of cars for sale on its site. The total dividend of 5.2p is more than triple the 1.5p pay-out last time.

Investors may have been concerned over the plateauing of new car sales in the UK, although Auto Trader sees no signs of the second-hand market coming off the boil.

Although the shares have gradually recovered after falling off a cliff in the wake of the Brexit referendum, they are now no higher than they were 12 months ago. If you are interested, look before other people notice.

The opposite was true of budget airline Flybe (FLYB), where shares jumped 4% on frankly dismal results. They had admittedly been sliding, from 50p in February and 58p a year ago to around 32p but there was nothing in the results to suggest that now was the time to go in.

Increased costs pushed Flybe into a loss as it failed to fill the extra seats it provided. The current year has started well but the airline continues to struggle and any rise in the share price is an opportunity to face reality and get out.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Auto Trader Group PLC362.20 GBX0.06-
Flybe Group PLC34.38 GBX4.17-
RPC Group PLC936.50 GBX-1.52-
About Author Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.