27. January 2021 | 07:00 CET
BYD, Fokus Mining, Steinhoff International: How to trade hot stocks!
If you want to invest in the most popular stocks, you need nerves of steel. Some stocks generate a return of several hundred percent. Others are involved in spectacular legal disputes and others lead what at first glance appears to be a somewhat speculative existence, as a penny stock. How investors can deal with trending stocks is explained using the examples of BYD, Fokus Mining and Steinhoff International.
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ISIN: CA3442041024 , CNE100000296 , NL0011375019
"[...] Both the geology and the infrastructure around the project make for a very attractive cost structure. We expect to be able to produce at 50% of the current gold price. [...]" Bill Guy, Chairman, Theta Gold Mines Limited
BYD: Most mistakes happen during the euphoria
The share of the electric pioneer BYD knows no bounds. In the past twelve months alone, the value increased by almost 450%. Currently, the share is trading near its all-time high. Whenever a share marks a new all-time high, it is a buy signal. However, given the rapid rise in the share price, investors must always expect corrections. Experience shows that many private investors make the wrong decisions, especially during dynamic phases of exaggeration.
If a share, like BYD at present, is quoted at an all-time high, greed and the fear of missing out grows in many investors. Profit-taking is fun, especially during dynamic market phases, and this is even more true for less liquid stocks. Here, selling into rising prices is much more successful. Although private investors will not encounter a liquidity problem with BYD, they should use the new all-time high to reconsider position size and investment target. Investors who have already achieved more than 100% returns with BYD should not forget to take profits.
Fokus Mining: The profit lies in the purchase
The Fokus Mining share has already passed the profit-taking phase. After the gold price started to soar after the pandemic's outbreak in April 2020 and knew no bounds, promising gold seekers, such as Fokus Mining, also made significant gains and multiplied. Since September, gold stocks have entered a consolidation move across the board. In Fokus Mining's case, this consolidation was extremely small, with a setback of only 30%, indicating great relative strength.
The Company operates in a mining region in the Canadian district of Quebec, where it is advancing its Galloway project amid promising infrastructure. The Company already attracted attention with good drilling results last year and is continuing drilling activities in 2021 with sufficient financial resources in place to do so. As the stock is trending sideways in a narrow range, rising gold prices and good drilling results could breathe new life into the stock. Unlike trending stocks, for which everyone is clamoring, investors do not have to chase the share price and can be a bit stingy when ordering - in line with the motto "The profit is in the purchase.”
Steinhoff International: Who invests in a legal dispute?
Steinhoff International is another share that is currently making headlines. The holding company, which until some time ago included the Poco furniture chain, slipped into an accounting scandal in 2017. As a result, the Company was hit with lawsuits totaling EUR 8 billion. In the summer of 2020, the Company made a settlement offer: In addition to a payment of USD 1 billion, the allegedly injured parties were to receive, among other things, shares in the fashion retailer Pepkor. So far, no agreement has been reached between Steinhoff International and the plaintiffs.
But the market currently suggests that something fundamental could happen to the penny stock, which is nevertheless still worth more than EUR 300 million. Goldman Sachs has recently increased its position in the Company's shares several times and now holds around 2.8% in Steinhoff. So will everything turn out well for Steinhoff in the end? Will there be a major consolidation? Can the accounting scandal and the wave of lawsuits finally be put to rest? Any answer would be speculation. While investing in Steinhoff International was still an attractive proposition for gamblers weeks ago, the current drop seems too high. Hoping for a positive outcome of legal disputes is no substitute for an intact investment story.