Derek Pain: I'm cautious, but remain one of the few bulls in the market

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The Independent Online

The No Pain, No Gain portfolio has experienced quite a few reverses since it was launched almost 16 years ago. Last week it received two further reminders of just how easy it is to lose money in the stock market.

Two constituents, both fairly recent additions, produced poor trading statements. Shares of this doleful duo, Alkane Energy and Stock Spirits, are well below my buying prices. I am not dumping them at this juncture but have put "stop loss" levels on the pair.

Alkane, recruited at 40.75p, resides, as I write, at around 23p. The shares have been in retreat for some time. Early on I assumed worries over its involvement with the oil group Egdon Resources were responsible. But it seems trading at the electricity producer has not been up to expectations and the year's adjusted pre-tax profits will emerge disappointingly between £3.25m and £3.5m.

The chief executive Neil O'Brien says the business has made a "strong start" to the current year and stockbroker Liberum rates the shares a buy. But the stock has been clobbered by tax rises in Poland, its most important market, while the group warned in November that trading was not going as well as hoped. Now it has revealed that the year's profits will be at the lower end of expectations.

The shares, already weak, fell further and are about 207p. Since being floated at 235p in 2013, they have been above 300p. The portfolio arrived at 278.75p.

On a happier note, and more in keeping with my cheerful comments last week about star constituents, I have sold Spirit Pub Co at 112.2p against a 42p buying price.

With the proceeds from Brightside, the insurance group that fell to a takeover bid last year, and relegated Findel and Animalcare, the portfolio's cash pile stacks up to approaching £28,000.

As I have said, additions are urgently required but I must admit to some hesitation. I am still following the quartet I mentioned in recent columns, and I have a few others under consideration.

But with two – the afore-mentioned Alkane and Stock – representing half of my most recent recruits, my caution is, perhaps, understandable.

Even so, I remain one of the few bulls, expecting shares to move higher this year. The Footsie, I reckon, could reach 7,200 points. But there are numerous headwinds. Two were underlined this week by the accountancy firm EY and leading registrar Capita.

EY says company profit warnings have remained high. In the final quarter of last year, 93 alerts appeared. Almost 300 were issued over the full year, the highest since the financial crisis erupted. In 2013, warnings that trading was not going according to plan reached 255.

Capita has followed its report of panic-selling by private investors towards the end of last year by suggesting that dividend payments this year will not reach 2014's level.

Mind you, last year's payments, totalling £97.4bn, were inflated by special distributions, largely Vodafone's bonanza following the sale of its US interests. The registrar reckons 2015's total will amount to £86bn – a rather subdued performance but, nevertheless, still outperforming most saving accounts.

Currency swings, tougher competition, lower world growth and the dire state of the eurozone, which may or may not benefit from quantitative easing, are among the difficulties companies face.

Shares started the year well but storms could lie ahead.

yourmoney@independent.co.uk

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