Derek Pain: Stock is struggling but it pays to stay positive

No Pain, No Gain

It's been a disappointing few months for the no pain, no gain portfolio. Although the stock market has performed reasonably well this year, some of my constituents have lost a little ground, thereby reducing the overall gain by some £1,500 to approaching £97,000.

I had expected a much stronger showing and enjoyed visions of again topping the £100,000 mark. But patience is a virtue when buying and selling shares and I remain hopeful of recapturing six figures although a return to those halcyon days when the portfolio sported a profit of nearly £150,000 is, quite clearly, a more distant dream.

Indeed three shares that made a major contribution to the portfolio's peak achievement are no longer involved. Goals Soccer Centres and restaurant chain Prezzo were sold below their top prices. Nevertheless they still produced handsome profits. Myhome International went belly-up. At one time the shares were offering a gain of more than £30,000 on the £5,000 investment. I did manage to retrieve a reasonable profit from the wreckage but the thought of all that lost cash still haunts me.

Hargreaves Services, the coal to waste disposal conglomerate, is one which has lost some recent strength. The weakness followed confirmation that talks are on with UK Coal. According to Hargreaves it is "cautiously reviewing" a potential merger. Such a move could represent an exciting expansion. Presumably any deal would revolve around UKC's mining interests and exclude its 43,500 acre land bank and related property developments.

Although it is only 16 years old, ambitious Hargreaves is the larger of the two companies. It has just one mine whereas UKC has four deep mines and another four surface sites.

The stock market dislikes uncertainty and I suspect the shares will display little enthusiasm until any deal is done and dusted. Price is another important factor; so is the daunting prospect of shed loads of shares being issued.

Mears, the social housing and home care group, is just ahead of my buying price. There are worries the group could be hit by public sector cutbacks. But chairman Bob Holt remains bullish saying most revenue comes from areas "where spend is largely non-discretionary". Pressure on public spending could actually prompt more local authorities to engage with Mears, he believes.

The group's order book has climbed to a record £2bn and the bid pipeline is £3.9bn. "True" pre-tax profit emerged at £18.4m (£16.6m) and stockbroker Investec is looking for a normalised return this year of £30.5m which would compare with £23.4m.

I am fairly happy with most constituents and remain on the look-out for recruits. Nighthawk Energy, the US focused oil and gas group, is causing some concern and I could be minded to dump the shares if they continue to decline.

They have had a horrendous time since hitting a 116p peak in 2008. In the past year the price topped 50p but has since been in ragged retreat. The group's latest pronouncement, an update on its star-rated Jolly Ranch development, left the stock market distinctly unimpressed. The shares have dropped from around 35p this year.

My two remaining walking wounded, Lighthouse and Private & Commercial Finance, which have inflicted hideous losses on the portfolio, should, of course, have been sold long ago.

Still a few grains of encouragement lurk. Lighthouse, the accountancy and wealth management group, has re-affirmed it is "cash generative, profitable and dividend paying". Indeed it is one of the companies bringing forward for tax reasons a dividend distribution.

PCF, a hire-purchase group, has so far proved to be impervious to stockbroker Daniel Stewart's entreaties that the shares represent a "compelling" buy. The 15p target price seems even more distant.

The portfolio's two Plus shares have experienced contrasting fortunes. My most recent addition, NCI Vehicle Rescue, has motored ahead but English Wines Group, which was enlisted more than three years ago, has lacked the fermentation I expected. Like NCI, I regard it as a long-term investment but its display has been so subdued that I am wondering whether to hold on.

I am looking at a couple of other possible Plus recruits. My worry is that the portfolio could become overweight in what is essentially a fringe share platform. Perhaps a blue chip and just one more Plus stock would be a satisfactory compromise? I hope to resolve the problem before the next update in June.