Magic Hat portfolio: SOM in, GSK out

The MHP (Magic Hat Portfolio) on Stockopedia (http://www.stockopedia.com/fantasy-funds/magic-hat-463/) is an experiment by me to see if a human can improve on a mechanical Greeblatt Magic Formula screen. I am trying to weed out “mistakes” that I feel the screening commits: unseasoned companies, scams, foreign companies (particularly Chinese), fishy accounting, and statistical quirks. Apart from that, I am agnostic as to the sector the company operates in, although I will try to avoid heavy concentration in any one sector. I will mostly apply “Strategic Ignorance”, by which I mean that I wont try to be clever in my stockpicking. My picking will be mostly mechanical. A summary of most of my Magic Hat articles can be found on the web page http://www.markcarter.me.uk/money/greenblatt.htm This will allow you to see, at a glance, what shares have been bought and sold in the past, as well as what shares have been rejected from consideration and why.

Big pharma company GSK (Glaxo) is booted out of the portfolio today, as it was bought a year ago. It returned about 10% on capital, and outperformed the index by 5%.

Taking its place is SOM (Somero Enterprises), which makes laser-guided equipment to automate the speading and levelling of concrete pourings. It is an American company, and on AIM, which may be regarded as a little risky. Still, at least it’s not Chinese, and has been public since 2006. You have to hand it to their website (http://www.somero.com/) for being plain-speaking. They describe themselves as “leaders in levelling”, delivering concrete that is “faster, flatter and with fewer people”. I wish all companies would explain themselves so simply and clearly.

SOM has a net cash position, pays a dividend, and even retired some debt in 2014. So the company seems legit, and generates healthy returns on capital. It has a Stockopedia Stock Rank of 99.

We’ll see how this one goes.

The best-performing share in the portfolio at the moment is MCGN (Microgen), which produces software for the financial services industry.

The worst-performing one is LAM (Lamprell), which makes oil rigs. So it’s not surprising that it is doing badly at the moment. Most of its business seems centred around the Midlle East at the moment.

I see that Brent crude is at $46 per barrel. It is still down from a year ago. I would have thought that prices would have crept up by now, but it looks like $50 is the “new normal”. The Independed reported in Jan 2015 (https://goo.gl/232Z7K) that:
> many North Sea fields were old, reaching the end of their viability, > and at $50 a barrel, the UK was among 17 countries producing oil that > was “cash negative” – losing money.

Maybe we’ll get a turnaround in the price of oil – I don’t know – but it looks like there would need to be a significant and sustained price above $50 for the North Sea to have any viability. Reserves are declining and assets are rotting; a devastating combination.

Stay safe out there.

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About mcturra2000

Computer programmer living in Scotland.
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