Invest-ability daily 01/10/21: Rough and Jumble

Why investors should always keep an eye on unloved shares

Photo by Donatella D’Anniballe on Unsplash

So, it seems my fridge purchase has done little to help the cause of AO shareholders – its shares took a hefty plunge this morning after it revealed the impact of supply chain issues. It’s continuing to grow, but at a slower rate than analysts expected, and that’s meant a potentially big disappointment on the profit front, which it expects to be even more second half weighted than normal. That’s always worrying to hear and especially so now, since there is increasing evidence – including the latest Institute of Directors survey – that the second half could be one of the trickier ones we’ve faced for some time.

Unsurprisingly, the AO warning has sent an unwelcome ripple through the retail sector, with the other obvious casualty being direct rival Currys. But, as I have speculated throughout the week, it seems implausible that any business dependent on container shipping is going to struggle to meet its expectations this year. That also means the Invest-ability merch we’ve ordered from Alibaba won’t be here in time for Christmas, if ever – sorry.

I’m keeping AO on my watchlist for the time being, though, on the basis that larger retailers are more likely to survive the current pickle than smaller rivals – the ‘last man standing’ argument if you like. And today’s fall means that if I do eventually decide to put its shares in my Sipp – and I mean eventually, as I am in no hurry to do anything given the market backdrop – they’re even cheaper today than they were last week, thus increasing my margin of safety.

This, in essence, is the thinking behind Phil’s new Jumble Sale portfolio, and why even though we’d all like to own truly great businesses, we shouldn’t be buying them at any price. Similarly, as we explain on the latest Quality Shares Podcast, we shouldn’t be buying shares just because they’re cheap – because they are often cheap for a reason and catching falling knives is a quick route to slashing your wealth.

One sector that is notably cheap – and for good reason – is the travel industry, where I notice shares have been gaining altitude this morning. I’m struggling to find a good reason why, other than to assume a degree of optimism that the world is going to start opening again after Australia said that it would soon allow the fully vaccinated to leave the country, following a similar relaxation of travel restrictions elsewhere. How nice of them.

Otherwise, the news is grindingly bad. Only two days ago SSP, the late night drunken pastie seller, said that its recovery is taking longer than previously anticipated and that it won’t get back to pre-pandemic levels of business until 2024. Results from cruise operator Carnival show that it’s still doing less than tenth of the business it did last year and lost approaching another $3bn in its latest quarter. And Esken, the owner of Southend Airport formerly known as Stobart, appears to be facing an existential crisis after revealing that it won’t operate any passenger flights over winter to preserve cash.

Oh, and there’s the small matter of the rising oil price the travel industry needs to content with, too. Brent Crude has almost doubled in price over the last year, dragging sector constituents up with it, which is somewhat at odds with the ‘end of oil’ and divestment narrative that ESG exponents have been espousing for some time. And again, it just goes to show that judicious shopping in the Jumble Sale for the stuff other people don’t want can sometimes yield the best bargains.

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