Hobson: On the Lookout for ISA Stock Picks

THE WEEK: A new ISA year creates the possibility of new stocks to buy and old ones to top up, says Morningstar columnist Rodney Hobson

Rodney Hobson 9 April, 2018 | 7:51AM

Is Topps Tiles going the way of Carpet Right? stocks failing FTSE 100 250 market volatility UK equities

The nerve-wracking market movements that followed Christmas have now run beyond Easter. It proves that however boring you try to make your investments, as I do, the stock market remains a wonderfully exciting place.

Since peaking at 7,778 points on 12 January, the FTSE 100 has moved erratically downwards. Most alarmingly, it fell below 6,900 points as President Donald Trump sparked a trade war with China that will hurt more American businesses than it helps. UK investors should take note – the US remains the powerhouse of the Western world and any damage there will set us all back.

But there have also been days of spectacular gains among the shuddering falls and we can reasonably hope that the index is stabilising above 7,000 points. Seriously bad news is still being shrugged off after a day or two of panic.

The gyrations of the FTSE 250 index have looked even more pronounced, although that is partly an illusion because the index stands at a much higher level. However, the overall effect is that the midcaps have moved erratically sideways for the past two months despite fears that the stocks in this index are more vulnerable to the effects of Brexit.

Most stock market maxims should be taken with a high degree of scepticism but one mantra always holds good. Buy on the dips. There are plenty of them in these tempestuous days. I remain fully invested.

A new ISA year creates the possibility of new stocks to buy and old ones to top up. It is always worth investing sooner rather than scramble to use up your entitlement later. I transferred the last £1,000 of my £20,000 entitlement into my stocks and shares ISA account just before the tax year ended but didn’t invest it in haste. I’m now on the lookout for where to put it, not to mention the next batch of ISA entitlement for 2018/19.

Topps and Bottoms

I’m normally highly sceptical when retailers blame poor sales on the weather or on the timing of Easter, especially if the retailer in question has been struggling anyway, but I was prepared to give Topps Tiles (TPT) a little leeway after its latest update. Full credit to the board for making it clear that sales would have been down anyway without the distortions of blizzards and bank holidays.

Topps is making a valiant and commendable attempt to cope with a softening market and increased competition that is driving down prices. Alas, renovating kitchens and bathrooms is something we can manage without in times of economic uncertainty. One ploy is to boost sales to the trade and to hotels and restaurants, which is fair enough but cannot fully compensate if everyone cuts back. Topps is also pushing a premium product and refurbishing shops.

The shares lost 13% on the day of the update and at around 70p they are down a third in just under a year. The company’s struggles have too much of an echo of Carpetright (CPR) for me. I just feel that investors are taking too much on trust and keeping too many fingers crossed if they count on a recovery any time soon.

A Speculative Punt

A pleasing aspect of stock market investing is to try to spot companies that fall too far when prospects are reasonably good. If you like a more speculative punt, look at specialist components manufacturer Gooch & Housego (GHH), where shares dropped 4% despite a decent trading update. They are now down from 1,540p in early December to around 1,265p.

Trading is in line with management expectations and markets are generally strong, with the order book at a record level for the half year at 31 March. The only negative factor is that demand for high reliability fibre couplers remains subdued.

It’s not a business I really understand but I’m tempted to learn more. The shares must surely be at the bottom.

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
Carpetright PLC16.74 GBX-3.66-
Gooch & Housego PLC1,509.00 GBX-2.96-
Topps Tiles PLC62.70 GBX1.13-

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.