Navigating the fog of war

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Navigating the fog of war
Master Investor Magazine

Master Investor Magazine 60

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Mark Watson-Mitchell offers readers some cautious words and some small-cap picks – Accrol Group, Totally and Medica Group. 

The lower this market falls the bargains increase.

However, before investors plunge into their buffer accounts and start to add to their portfolios, I emphasise that it is actually time to stand back and consider your actions.

Lost momentum but for how long?

There will come a time when the market has regained some equilibrium to completely reassess the constituents of your portfolio – are they the right companies in which to invest going forward?

It surely is prudent to model into your thinking some impact from slower economic growth brought about by the efforts to contain this virus.

Buyers or sellers?

Would you buy the shares at today’s prices? Are earnings going to be hit by the virus effect? If so, will it be severe and long-term, or just a short, sharp hit?

To be going out into the market today and selling it lock stock and barrel would be madness, in my view. The proceeds from such disposals would be fractions of their cost, and totally disproportionate to the real underlying values of the companies concerned.

A month ago, it might have been right to sell everything and anything with a Chinese connection. However, news that the country has been increasing and maintaining its steel production is a signal that many may have missed. And factories in Asia are re-opening, which is another sign of eastern recovery.

Some small-cap picks

Obviously, suppliers into the retail and medical sectors have become recent hot spots. But be careful of being ‘spoofed’ into the several companies that are about to announce the ‘magic vaccine’ to end our worries. Such a remedy may well be a very long way off.

In such times it is best to look for resilient demand drivers, low leverage and highly cash-generative business models.

However, loo roll makers will undoubtedly see big benefits as panic buyers clear retailers’ shelves – like Accrol Group (LON:ACRL), currently 31p. It is a massive supplier of toilet rolls, kitchen rolls and facial tissues to discounters and independent customers. Profile 12.03.19 @ 22p.

Last week’s Budget announced a mass of expenditure to go into the NHS to not only help to cope with the pressures of coronavirus but also to attempt to boost the massive underfunding and reduced staffing that the NHS is currently enduring.

Last Thursday I highlighted Totally (LON:TLY), now at 10.75p. The company is a fast expanding supplier of innovative solutions to both the NHS and the healthcare sector generally. It works with the NHS to provide a full range of Urgent Care Services including NHS 111, GP out-of-hours, Clinical Assessment Services and Urgent Treatment Centres. Don’t underestimate this little group and the benefits that both the virus and the Budget spend will create. The group will be announcing its finals trading update in a few weeks. Profile 19.03.20 @ 12p set an end-2020 target price of 18p.

And also take another good look at Medica Group (LON:MGP), currently only 100p. It is the market leader in the provision of Teleradiology services to the NHS, covering the transmission of images, such as X-ray/CT/MRI, from one location to another, for the purpose of interpreting and reporting those images. The group will be declaring its results on Monday of next week and they are sure to be impressive. Profile 07.01.20 @ 155p set an end-2020 target price of 215p.

Most of all stay safe please.

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