The stock market never ceases to amaze me, or more to the point, how the market can be utterly bearish on a certain stock or sector, only for the tide to turn on a dime and the under-pressure stocks bounce back with a vengeance. It’s one of the many aspects of investing that keeps us on our toes and reminds us that we should always be prepared to reappraise our stance should the underlying picture change.
Shooting the lights out
And it’s on this theme that I continue with three stocks that have caught my attention while at my trading desk: Anglo American (LSE: AAL), Glencore (LSE: GLEN) and Antofagasta (LSE: ANTO).
As can be seen from the one-month chart below, all three stocks have left the FTSE 100 for dust. Between 1 February and close of play on 7 March, Anglo American shares rose by a whopping 177%, Glencore shares have nearly doubled, up 93% and Antofagasta is the laggard, only up by 58%!
This meteoric rise has taken most of the market (and indeed me) by surprise, as they embarked on the rollercoaster that currently shows no signs of stopping. Famous last words. However, I can’t help but wonder whether anyone had the foresight, or indeed the constitution, to hold onto this basket of shares for the last 26 trading days, given the volatility in the sector and the negativity towards the shares due to the impact of tumbling commodity prices.
A look at the longer term
That said, personally I don’t trade on momentum. Instead, I look at the fundamentals of the companies that I’m interested in buying, which includes a look at the current trading environment. This is also the case for shares that I hold and remains a continual process.
I believe that all investors should try to find out as much as they can about the general health of the sector in which their investments trade as it can be a while before tough conditions show in the company accounts.
And it’s the environment that currently puts me off the shares. The past week has seen what appears to be the start of a period of price consolidation in the commodities sector with Brent Crude edging over $40 per barrel yesterday. But I’d still like to see a sustained period of price stability across the sector as we see the current oversupply in the market work its way out.
Indeed, as we can see from the 12-month chart below, despite the meteoric rise of the shares under review over the last few weeks – all have still underperformed the FTSE 100 over the last 12 months. They suffered as the slump in the price of the material that they dig out of the ground collapsed, causing management to take drastic action to strengthen the balance sheet.
Will you grow richer in 2016?
However, there’s no doubt about it – this trade could well have been one of, if not the best, trade of the month. How long it will run for is anyone’s guess – but as things stand it’s still not for me.
