Jesse Livermore is best known as a fearless stock market trader in the US in the early part of the 20th century (and for making an absolute packet by going short into the Wall Street Crash of October 1929), but his career also shows the value of patience. One Livermore maxim is that “there are times to go long, times to be short and times to go fishing” and sometimes the power of doing nothing is underestimated.
This column is not afraid to admit that taking a particularly strong view on the direction of the markets is far from easy right now, given the number of cross‑currents and contradictory signals in evidence, in terms of both company commentary and economic data. However, one thing does seem clear: leadership is changing.
Since the markets bottomed in early October, the worst performers, namely China and Hong Kong, are the best, and the best performers, India and Brazil, are just about the worst. The FTSE 250 is now outpacing the FTSE 100 and in America the older‑world Dow Jones is beating the tech‑laden Nasdaq.
The unloved London market is putting on a bit of a run, too, and its run is giving this column the courage of its convictions that British shares are cheap. That said, chasing stocks that have just surged is not always a smart thing to do and, to take Livermore’s observation to heart, we will this week prefer to stick with two earlier picks that still look good value, rather than go searching for anything new. Valuation is the ultimate arbiter of investment returns, after all.
The first is the pawnbroker H&T. The shares have already gained almost 40pc since our initial tip in August 2019, with dividends on top, and the £199m stock still ticks a lot of the right boxes: a strong competitive position, as the leader in its field in a fragmented market; ongoing investment in that competitive position, in the form of new store openings and a new IT and point‑of‑sale system; a sound balance sheet; good interest and dividend cover; and an undemanding valuation, since the shares trade at 13 times forecast earnings and come with a 3.3pc yield.
H&T’s pledge book continues to grow, as you might expect in these straitened times. A trading update last week reported a 47pc increase in 2022 to £99m and said there was strong demand in January, too, helped by last year’s £16.9m capital raising at 425p a share.
Meanwhile, December brought record sales levels for the retail business, which sells high‑quality new and second‑hand watches and jewellery. H&T has also added a new string to its bow with the acquisition of watch repair and servicing specialist Swiss Time Services.
Gold buying is a much smaller portion of the overall business, so price volatility in the precious metal is less of an issue, while the company’s retreat from unsecured lending several years ago looks well timed, given the additional regulatory scrutiny of this sector by the City regulator. That said, tighter regulation of small‑sum lending could drive more business to the pawnbroking arm over time.
The company’s next scheduled update comes on March 7 in the shape of its full‑year results to December. We’ll hang on to H&T. Hold.
Questor says: hold
Share price at close: 454p
Update: Derwent London
The FTSE 250’s Derwent London is more of a play on better times ahead, especially in the form of lower interest rates, since reduced returns on cash (and falling bond yields) may tempt investors to look for other sources of yield, including real estate investment trusts (Reits).
This column has no clue whether inflation is past its peak but, given the level of the national debt, the chances are the Bank of England will be keen to cut interest rates when it can (even if that risks secondary and tertiary waves of price increases).
That could focus attention on Derwent London’s forecast 3.2pc yield for 2023 and also its prime portfolio of London assets, valued at £40.23 a share at the first‑half stage in 2022.
The shares trade at a 36pc discount to that figure, which looks too big, even allowing for the rise of working from home and hybrid arrangements, a view seemingly confirmed by last week’s sale of a property in EC1 for a marginal discount to asset value.
The foundations still look solid at Derwent London. Hold.
Questor says: hold
Share price at close: £255.6
Russ Mould is investment director at AJ Bell, the stockbroker
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