Tuesday 8 January 2013

Mid-Caps still leading the way!

Looks like we are getting a classic January effect with mid- and small-caps; the FTSE Mid-250 index has clearly broken to new multi-year highs, while over the other side of the Pond, the small-cap Russell 2000 index has the beating of the large-cap S&P 500 index...


FTSE Mid-250 breaking out!


Russell 2000 surges ahead of S&P 500

Now while I would caution against unbridled enthusiasm for the stock market right now, given the recent rally, I would suggest that this mid- and small-cap effect has further to run this month. You can play this one of two ways: either -

1. Buy a FTSE Mid-250 mid-cap ETF (like the iShares FTSE Mid-250 index ETF, code: MIDD);
2. Buy a selection of mid- and small-cap UK stocks that are breaking to new 52-week price highs at present. 

For the latter, I can suggest looking at the top movers in the index, which according to Yahoo Finance UK today are: Miners Ferrexpo (FXPO) and Bumi (BUMI), plus aerospace & defence stock Chemring (CHG) and homebuilders Bovis Homes (BVS) and Barratt Developments (BDEV).

Disclaimer: I own shares in Chemring

Wednesday 2 January 2013

Mining stocks breaking out!

I was looking at the Miners today in the UK and thinking to myself that the New Year would be a good time to take a long position in this sector. After all, it is a cyclical sector that typically performs well over the November to April period, and on top of that the sector performed relatively poorly over 2012 (STOXX Basic Resources sector +4% over 2012 versus STOXX 600 Europe index +14%). 

The chart looks encouraging for the beginning of this year; it looks like a breakout is occurring, flagging potential further gains in the months ahead. 


I have accordingly bought a position in the iShares STOXX Basic Resources sector ETF today (denominated in euros and quoted in Germany). You could of course replicate the main stock holdings yourself in sterling by buying into Rio Tinto, Anglo American and BHP Billiton (the three largest components of the sector). 

It is relatively cheap at a forecast P/E of 12x for 2013e, EV/EBITDA of 6.3x and price/book of 1.3x. More importantly, it is a good play on the resurgence of China - just look at this chart of the Shanghai Composite share index - after a terrible 2011 and 2012, it is rebounding sharply!



With global stock markets rallying to new 12-month highs, it looks as if the post US-fiscal cliff period might be a good one for stocks and shares, led up by cyclical sectors such as Mining, Autos and even Financials.