Investors’ sentiment has fallen through the floor, and no wonder. With the Budget looming, uncertainty has shot up, and the markets hate uncertainty. Investors are looking at the economic landscape and feeling as though there is no safe haven in sight. They are, therefore, recklessly selling assets in a clumsy manner, affecting many stock prices. Sky News has reported that 140 listed companies have written to Chancellor Rachel Reeves to say that uncertainty over the future of inheritance tax relief on Aim shares “is damaging investor confidence”. I’m surprised it’s only 140.
But it’s not just the looming Budget that has the market spooked. Rachel Reeves’ policies and Labour’s stance on the economy are adding to the concern. For context, Reeves is keen to set herself apart from the Conservatives by signalling that Labour will be the party of sound money. But many in the market are sceptical. Her piece in The Sunday Times was a chance to allay some of those jitters but, instead, she produced an article that talked a lot but said nothing at all. Failing to invite Elon Musk to the much-vaunted investment summit also seems a poor decision – especially when all eyes are on SpaceX’s rocket booster making a successful landing after a test launch.
In theory, fiscal prudence is a good thing. After all, you don’t want to see government debt spiral out of control, especially with the spectre of inflation still lurking in the background. But the market didn’t like the suggestion that “this Budget will be painful”, and many feel as if any money they have lying around is likely to be hoovered up. Whether this is correct is another question and not one for me to answer. My focus is purely on what drives the market.
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Ignore the Budget volatility
With the Autumn Budget, we could be in for more volatility. Certainly the market is in a “risk-off” mood at present. But perhaps the new government has decided to set expectations low and then deliver a less painful Budget than anticipated so the speech is well received? One can only hope. It’s all very well saying that the rich (whenever someone says this, they usually mean everyone who earns more than they do, of course) should pay more tax, but if you tax them too much, they will leave. What people anticipate, and what people actually do, are two different things. When, during the Raj, the British government – concerned about venomous cobras in Delhi – offered a bounty for every dead cobra, it found that all went well until people decided to breed the cobras to get the income. Perverse incentives are real.
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But despite all this negativity, on a long enough time frame I remain bullish, and so I’m always looking for stocks to trade. One that springs to mind is THG (LSE: THG), formerly known as The Hut Group and owner of the Myprotein brand, among many others. It recently issued new shares to raise capital. According to founder and CEO Matt Moulding, the share placing, at 49p, was more than four times oversubscribed. And yet the closing price the day of the placing was 47.72p. That is not what you’d expect if the demand Moulding trumpeted really existed. Someone is lying, and the odds are investors exaggerated their potential appetite for the shares. But this is why what someone says isn’t as important as the price, because the share price doesn’t lie. It tells you everything you need to know.
Despite this, the raising of capital to fund Ingenuity, THG’s proprietary ecommerce platform over the medium term, with a view to spinning it off eventually, makes sense. Nobody can accurately value THG – at least not according to Moulding. Splitting it may help unlock any hidden value; Matt Moulding also says that any profits and cash made from the beauty and nutrition businesses have been “relentlessly invested into building Ingenuity”. I’ll stay on the sidelines for now but watch with interest. If profits rise following the demerger, then one imagines the share price would follow.
A company to look at
Another company I’ve watched for some time is Seeing Machines (Aim: SEE). Seeing Machines develops advanced computer vision technology that tracks eye movements, head position and other indicators to determine if a driver is distracted or fatigued. The technology essentially acts as a digital co-pilot, making sure drivers are alert and focused. If it senses a problem, it can warn the driver or even take action to prevent an accident. The technology has been shown to reduce fatigue-related incidents by more than 90%. For that reason, it’s certainly a business that you’d like to see prosper. The technology is becoming mandatory on new cars in the EU. However, as exciting as this product is, and despite the group’s renowned clients, it is investing heavily in research and development (R&D) to ensure the product remains competitive. This eats away into revenues generated and so far the business has yet to achieve any profits for shareholders.
That said, the potential market is huge. Every single new car coming on the road is up for grabs, and so far there are only 2.2 million cars using Seeing Machines’ technology. Commercial vehicles such as lorries, mining equipment, haulage, aviation and rail are all potential growth sectors. There is no doubt that the TAM (total addressable market) is huge here.
At present, the shares are not far off 52-week lows. And with profits not currently projected until 2026, and a huge Ebitda loss of between $17 million$19 million forecast for the financial year 2024, my view is to remain cautious but watch with interest, and wait for a change in the trend. I’m not convinced that Seeing Machines can get to break-even without tapping shareholders for more cash. And given the recent lows in the share price, the market appears to agree. If Seeing Machines can commercialise and scale up its technology, there will be plenty of upside left if I at least wait until the big funding risk has dissipated.
An exciting opportunity
One of the most exciting businesses on the London Stock Exchange, in my opinion, is Beeks Financial Cloud (Aim: BKS). This is a company that has been listed since 2018 and operates in a niche but growing sector: cloud computing for financial markets. It provides the infrastructure that allows traders, brokers and financial institutions to connect to financial exchanges quickly and securely. Beeks makes sure that when financial transactions happen, they happen fast, reliably and without interruptions.
The group’s main product consists of ultra-low latency, high-performance connections. Latency is a word for “delay” and, in trading, even a millisecond’s delay can mean the difference between making money or losing it. Beeks helps traders execute trades as quickly as possible by hosting servers close to major financial exchanges, meaning the data has less distance to travel. For example, if you’re a hedge fund trading in New York but using a trading platform based in London, Beeks’ infrastructure ensures that your orders are executed with minimal delay. They offer these services to a range of financial institutions, from retail brokers to big investment banks.
This stock is exciting because Beeks has just signed a contract with Nasdaq – a huge market. While we don’t know how big the contract is, the potential is clear. Beeks is forecast to make a £5.5 million post-tax profit for the year to 30 June 2025, which puts it on a price/earnings (p/e) ratio of 32. It’s not cheap. But then how many companies work with some of the biggest financial exchanges in the world? I like the stock and would want to take a trading position if it were to break out of the recent highs at 290p.
Next on the list is Ceres Power Holdings (LSE: CWR), a clean-energy company focused on one of the most promising technologies of the future: fuel cells. Fuel cells generate electricity through a chemical reaction, without combustion, making them a cleaner alternative to traditional energy sources. Its focus is on developing solid oxide fuel cell (SOFC) technology. However, Ceres doesn’t just make these fuel cells, it licences the technology to manufacturers, allowing them to integrate Ceres fuel cells into their own products. This means they don’t need to build their own massive production facilities, keeping costs low while scaling up rapidly.
Michael holds no positions in any of the stocks mentioned. You can get more of Michael’s trade ideas at newsletter.buythebullmarket.com
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