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No Pain, No Gain: Curse of penny dreadfuls

MY COMMENTS last week about three of the stock market's walking wounded seems to have struck a chord with some investors.

I suspect quite a few have penny dreadfuls tucked away in their portfolios. It is easy to hang on to a falling share hoping things will improve; rather than accept a loss by selling, the hopeful investor is left with shares that represent dead money.

I did not include last week's three investment casualties - Coburg, Ronson and Upton & Southern - in the no pain, no gain portfolio because they have still a long way to go before they can hope to command serious attention. They are a reasonable punt for anyone with a little cash to spare, but I would like to see much more evidence of recovery before thinking about their inclusion in the portfolio. Indeed one of the investment tricks with so-called busted flushes is to alight on them when they have moved along the recovery road. Paramount, the little pubs chain I slipped into thecollection in April at 15p, is now around 40p after further proof of its profits revival.

It has attracted a bid. The predator probably feels the time has arrived to cash in on the hard work.

But I am growing increasingly concerned about another alleged recovery constituent, Merrydown, the cider and fruit juice group.

Its shares have fallen considerably from my 35.5p buying price, in part on fears that profits will not hit the forecast pounds 750,000.

I am on holiday for the next few weeks, when Merrydown will roll out interim figures. Should the shares fall much below 20p I would be inclined to think about giving them the old heave-ho.

Like last week's battered threesome, this week's company has seen much better days and although its management has been striving to reclaim past glories it is, I suggest, too early to think in terms of inclusion in the no pain, no gain portfolio.

Carbo, once called Hopkinsons, is a classic small-cap recovery stock, offering plenty of promise but little in the way of tangible profits progress.

Last year the group, transformed by the chief executive, Ken Jackson, from a hotchpotch of interests into an abrasives business, had a pounds 500,000 loss last year but was expected to be in profit this year. Recent interim figures suggest ABN Amro now looks for another pounds 500,000 deficit this year and has lowered next year's profit forecast to pounds 1.1m.

Any day, Carbo should complete the sale of the last remaining non-abrasives operation, an Italian business. It has been acquiring abrasive companies and is in a position to be a much more positive player in what is still a fragmented world. With some major groups, such as Saint Gobain of France, already involved Carbo's growing strength in its chosen area could lead to a takeover strike.

Debt, helped by the pounds 4m sale of a Chesterfield site, is about pounds 12.2m and other land disposals should further chip away at what is after all a modest debt pile by today's standards.

The shares, at 18.25p, offer a 7 per cent dividend yield but such an attraction is an illusion. The interim payment was eliminated and there is likely to be only a token final.

The shares did, in the now distant 1980s, top 200p; their low point, hit last year, is 11p.

With luck, Carbo could have a rewarding future, although I would be surprised if any unfortunate investor who acquired the shares when they were riding at their peak will ever get their money back - yet another case of hanging on when the shares should be been unloaded.