Wall Street eyes rebound, Gear4music sings, Chapel Down up for sale, activist gets heavy with Elementis and Saga insurance woes balance out cruise success

“Last night’s sell-off in certain US tech stocks doesn’t appear to have had any lasting damage given how futures prices are pointing towards an ‘up’ day for Wall Street on Tuesday,” says Russ Mould, Investment Director at AJ Bell.

“Admittedly, a near-7% decline in Nvidia might have sounded the alarm bells that we’re seeing a shift in the market. It’s important to remember that stocks don’t always travel in a straight line and there is a herd mentality with big-name companies on the market.

“When everyone was piling into Nvidia, it created a sense of FOMO – fear of missing out – so others followed suit and bid up the shares even further. The same works in reverse, where a bout of selling can be exacerbated by others following the crowd and panicking.

“Quite a few institutional investors have been suggesting in recent months that US markets were looking a bit toppy. When everything is racing ahead it is time to take a hard look at a portfolio and think about what could go wrong as well as what could go right. The higher the big tech stocks rise, the greater the potential fall if markets turn.

“The FTSE 100 held firm at 8,286 as strength in oil producers and miners was offset by weakness in industrials and service companies. It’s no surprise to see British American Tobacco and Centrica among the top FTSE 100 risers given their defensive qualities are high up on investors’ lists when reacting to a market wobble. Yet the presence of commodity producers among the top risers implies that we’re not at the ‘risk-off’ stage across the market.”

Gear4music

“Gear4music has been singing the wrong notes for investors in recent years, joining the brigade of companies suffering from a post-pandemic growth splutter.

“While sales dipped in its latest results, there was an improvement in earnings, helped by margin gains and cost base reductions. That’s put the company on a stronger footing and investors raced to buy the shares in response, a big change of fortunes given the stock has been trading at a bombed-out level for a couple of years.

“This shift in fortunes coincides with a changing of the guard, with some directors leaving and others switching roles.

“It appears that the results are strong enough to stick Gear4music on the list of turnaround candidates so don’t be surprised to see more people singing its praises going forward. That’s as long as the latest stroke of good luck is not a one-off.”

Chapel Down

“Fancy owning an English wine maker? Now’s your chance as Chapel Down has effectively put itself up for sale. Coming so soon after moving from the Aquis stock exchange to AIM, one might think something negative is afoot. Yet it makes sense to have raised the company’s profile by switching exchanges ahead of putting the ‘for sale’ flag up.

“Chapel Down has made a name for itself over the years but the business appears to have a hit the ceiling in terms of scale. To grow even more, it really needs a big slug of cash to invest in the business and that might be better coming from a new, bigger owner, rather than going cap in hand to shareholders on an ad hoc basis.

“Plenty of big drinks companies would be in the market for a niche player like Chapel Down as it could add something new for them to get their teeth into, and also as a way of cross-selling products.”

Elementis

“Activist investors often like to negotiate behind closed doors. Private conversations can give the impression they are being helpful and respectful. It’s only when the target refuses to engage or bats them away that activist investors resort to going public with their criticisms and demands.

“That seems to be the case with Gatemore Capital which has published its second public letter spelling out what it wants chemicals group Elementis to do.

“Its latest letter contains the threat that Gatemore might call for an emergency shareholder meeting to oust Elementis’ chairman. Despite the muted market reaction to the letter, it appears that Gatemore’s patience is running out and it is going to turn increasingly hostile to enact change.”

Saga

“The latest results from over-50s travel and insurance firm Saga are mixed. The company is seeing a real bounce-back in demand for its cruises but the insurance business continues to be dogged by inflation, which is hitting margins on fixed-price products. The net result is that Saga is only on track to hit existing forecasts, rather than being in a position to lift guidance.

“A key part of Saga’s strategy is to seek partnership deals which will allow it to grow without having to employ lots of capital and help it to address a stretched balance sheet. The company walked back on an attempt to effectively outsource its underwriting operation last year.

“However, there is clearly appetite among management to keep pursuing these sorts of deals, including for its cruise ships which are expensive to run, and the market is likely to judge the company on its ability to deliver.

“There is plenty about the Saga proposition which makes sense – the demographic it serves is substantial and growing and typically has more disposable income than other parts of the population. It also remains a strong brand which seems to resonate with its target audience.

“However, since listing a decade ago the company has, through a mix of poor execution and events like the pandemic, consistently failed to match up to expectations.”

These articles are for information purposes only and are not a personal recommendation or advice.