Derek Pain: Two shares that you should get excited about

No Pain, No Gain

Reviewing the No Pain, No Gain portfolio towards the end of last year was a sombre and uncomfortable task. Only two constituents recorded gains; the rest were in the red. Even in these unhappy days, such a poor performance was deeply distressing. So forgive my excitement if I applaud the arrival of another member to the plus club.

Mears, the support services group, is the share that has enjoyed success. It celebrated the turn of the year by romping ahead 48p to 286p although, as I write, it has lost a little enthusiasm. Still, since late November the price has surged from 195p. The portfolio re-recruited Mears in March at 272p.

What has created such euphoria? Last week, chairman Bob Holt issued a trading statement that was encouraging, but added little to our store of knowledge. So could corporate activity lurk or, more likely, have investors come round to the view that the shares have been oversold?

The stock market has made some headway since those deeply depressing November days when the Footsie crashed to 3,665 points. Even so, Mears has comfortably outpaced any other portfolio player.

Holt's latest comments merely underlined that the group's two main divisions – social housing and domiciliary care – were trading well and profit hopes for the year just ended would be achieved. He reiterated earlier comments that 81 per cent of this year's forecast revenue was already in the bag with the forward order book standing at £1.6bn.

Analysts had already taken the view that last year's profits would top £20m against £15.5m in the previous year. I have not heard of any forecasts being lifted as a result of the latest comments made by Holt.

Mears, which started life as a builder 20 years ago, arrived on the junior AIM market in 1996 at 10p a share. The portfolio first descended on the shares at 23p, selling at 71.5p. Since then the price has topped 380p but, like almost every share in sight, it was battered in the stock market retreat.

The group's fortune stems largely from social housing, a market now worth some £10bn a year. It quickly latched on to the trend to outsource local authority activities and has arranged an increasingly impressive array of long-term maintenance contracts with housing trusts and others. It supports around 500,000 homes.

Two years ago it came to the conclusion that home care offered similar opportunities. It splashed out £23.8m in cash and shares for a company called Careforce. Since then it has swallowed a string of small operators. And it has also won some significant care contracts with local organisations.

The group is now offering a joint care and repair service. So far three contracts embracing social housing and home care have been signed. Holt, who expects to report year's figures in March, believes more twin deals will be fixed up in the future.

Shares of another constituent, Nighthawk Energy, have also made progress, but have yet to reach my buying price. The US-focused oil and gas group continues to make headway and Peter Bassett, an analyst at stockbroker Hanson Westhouse, suggests the Jolly Ranch oilfield in Colorado could soon produce 1,000 barrels a day. The group has reduced its Jolly costs. It talks about the "financial robustness" of the oil field, which has a break even threshold of $25 (£23) a barrel. Further cuts could lower the production level to $15 a barrel.

It seems the collapse in the international oil price has put pressure on some rival US operators. With a break even level of $30 to $60 a barrel, they have been forced to cancel or suspend operations. Their difficulties can only add to Jolly's appeal.

Nighthawk and its US partner, Running Foxes, are continuing to develop other projects. Promising prospects near the Jolly site have been acquired with the group convinced that early estimates that up to 4 million barrels of oil are hidden beneath the new acreage will prove to be too low. The two share ownership of the Jolly field with Running Foxes as the operator.

Hanson Westhouse repeats its target of 121p a share. Another researcher is shooting for 130p. The shares are around 33p against the 44p paid by the portfolio. They have been as low as 19.5p although last year the price touched 116p.