In December I wrote an article about 3 speculative stocks for 2014. I thought it would be worth checking in today, as I’m worried some of my suggestions might be getting a little hyped. Hype is not always justified, but usually manifests itself in a rocketing share price. Often, the rocketing share price then creates more hype.
In many instances, traders also heavily influence the hype. I am not a trader, but I’m often interested in what they are saying. Without a doubt, traders have influenced me from time to time.
Global Health Limited (ASX: GLH) shares soared over 16% on Wednesday to close at 59c. The most obvious reason for this is the buy recommendation published the day before by The Australian, just two months after I first suggested Global Health to Motley Fool readers. I guess a few shareholders disagreed with me, because after my article the share price fell to 30c. That was a bit worrisome, but may turn out to have been an excellent opportunity to buy shares. I own more shares now.
Another influence on the share price was undoubtedly the headline results for the first half of 2014: a revenue increase of 22% leading to NPAT growth of 38% compared to the prior corresponding period. The company also reconfirmed guidance of around $1.6 million NPAT for 2014. However, after these results the share price only moved up to 46c, so it is fairly clear that The Australian article, which came a day later, has been influential.
As amortisation really kicks in, I expect Global Health’s profit growth to slow, but it will be nice to see the cashflow catch up a bit. Operating cashflow for the most recent half fell below $200,000, well under reported profit of almost $700,000.
Meanwhile Vmoto Limited (ASX: VMT) shares have come back down from a peak of 5.7c per share, after some dramatic price increases in January. At the risk of seeming quaint, the chart below demonstrates my thoughts on how sentiment affected the market price of Vmoto shares.
I cannot know what motivated someone to buy shares at 5.7 cents per share, but it would have involved some rather optimistic assumptions about the company’s future. I hope the person is right!
Since I last wrote about speculative stocks, I took a small position in Anteo Diagnostics Ltd (ASX: ADO). I did this because I believe the company is close to commercialising its molecular glue technology. The company’s product will save money for immunoassay manufacturers, so I think demand will be strong. However, I’ve been unable to find an announcement from one of their first business partners, BBI Solutions, that specifically and proudly names Anteo Diagnostics as a partner. I can’t help wondering why that is.
I’m generally pretty uncomfortable holding speculative stocks, and I don’t plan to have this many in my portfolio ever again. I have barely any shares in Vmoto, I’ve sold some already and I’m considering selling the rest, especially if the company hasn’t released its results by the end of February. I’m very happy to hold Global Health, as the company is moving slowly to de-risk its operations by growing recurring revenue. Forays into speculation aside, I believe that investors can achieve strong returns with less risk, by investing in established superstar stocks. Perhaps that is where I should be focusing my research efforts.
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Motley Fool contributor Claude Walker (@claudedwalker) owns shares in Anteo Diagnostics, Global Health and Vmoto, and welcomes your comments.