It may just be that several poor results have fallen together, or that shares are fully valued after 10 years of a bull market, but it has become increasingly difficult to spot clearly good investments and increasingly easy to identify companies to avoid.
I don’t think it’s anything to do with Brexit or trade wars. In any case, companies are still reporting sales and earnings from periods when there was still reasonable optimism that Trump and/or China would back down and that a Brexit deal acceptable to the UK and the European Union would be found.
Despite my natural optimism, I still have £9,000 of this year’s ISA allowance plus £1,400 of dividends received during September lying waiting to be invested. I work on the principle that if you have cash available to invest you should act sooner rather than later. You don’t collect dividends on uninvested money and you don’t want to get caught up in a scramble to invest right at the end of the financial year. On the other hand, I don’t invest for the sake of it if I don’t see a really good opportunity.
I do, however, have no intention of winding down my holdings. If the worst comes to the worst, I’ll grit my teeth and collect dividends until we come out of the other end of the tunnel, as we always do.
Tale of Two Travel Agents
Travel company Thomas Cook (TCG) said that hot weather has discouraged people from booking holidays.
One can sympathise with the argument that Brits decided to holiday in this country rather than book package holidays abroad, especially with the pound buying so few euros, but this does not really seem to account for Cook’s problems.
Despite the dearth of late bookers this year, the summer programme was 90% sold, in line with last year, and prices in the British tour operating business were actually up 7%. The problem was that the Spanish market was highly competitive, leading to heavy last-minute promotions, and prices were squeezed in other parts of Europe.
The weather may be different next year and one hopes there will not be a repeat of the incident in which two Cook holidaymakers died at an Egyptian hotel and others were taken ill, though the bad publicity may linger.
Cook warned this week that profits in the year to 30 September would fall from £323 million to about £280 million rather than rise to £350 million as indicated in July, when the heatwave had already been running for best part of four weeks. A £10 million provision for illness related claims is only part of the story.
Competition will not go away. Four years ago I warned against piling into Cook shares at around 100p and watched those who ignored my advice bank a 50% profit in pretty short order. The euphoria soon evaporated, though, and the shares are now around 60p. They found a floor at this level in July 2016. I suspect they will not do so again this time.
In sharp contrast, TUI (TUI) said all was going according to plan, with another year of double digit profits growth. Not only has it expanded the number of hotel rooms and cruise cabins on offer, it is managing to fill them at slightly higher prices. Occupancy was a remarkable 98% during the summer with growth in all major markets “even with the sustained period of hot weather in Northern Europe”.
Tui shares added 36p to £14.74 but they were top side of £18 only four months ago. I don’t like the holiday market as an investment because it is so unpredictable but if this sector attracts you in the autumn sunshine then you have to choose Tui.
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, nor are they the opinions of Morningstar.
