In less than 14 months our Gamble of the Week shares have returned gains like 53.76, 85.22 and 136.56% and more.

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On 20 November 2008 – as the extent of the financial contagion became apparent – the All Share index slipped to just 17 814 points – the lowest level since December 2005. It recovered slightly before plummeting to a second short-term low at just 18 121 points on 3 March 2009. Equities slumped 24.7% in 2008. But investors have revelled in the global economic recovery since, with a 28.62% positive performance from domestic equities through 2009. 

Check out our portfolio performance for 2009 here 

More recently investment professionals have started asking questions about the speed and duration of this economy. They are watching with bated breath to see how Europe deals with its 2010 sovereign debt crisis. And local shares have hiccupped and stuttered through the first half of 2010 as a result. The market sold off in January – recovered strongly between February and mid- April – and has been losing steam ever since.   
 

Volatility and uncertainty go hand in hand. In the months leading up to the 2008 sub-prime crisis the JSE All Share index frequently posted daily moves in excess of 4%. It’s almost impossible to make short-term investment decisions in these conditions, because top companies react to market sentiment rather than economic fundamentals. It’s for this reason most of the MoneyWeek portfolio punts take a one to three-year view. 

Hitting ‘pay dirt’
Careful stock selection can see an equity investor through the most trying times. By investing in the correct sector – and the correct companies in the sector – you can almost always secure index-beating returns. MoneyWeek’s Gamble of the week introduced our readers to some top quality companies during 2009. In today’s column we’ll take a look at the best performers and decide whether there’s room for further price appreciation.

The top performer in our Gamble of the week portfolio is information technology (IT) minnow Pinnacle Holdings (JSE: PNC). We picked the share on 6 April 2009 (Issue 88) at 186c/share and added to our position on 4 September 2009 (Issue 110) at 225c/share. If you purchased Pinnacle you gained exposure to a welldiversified IT company with an exemplary track record stretching back 16 years. The hardware, software and IT services play offers an inspiring range of international branded products including Microsoft, VMWare, Sony, Apacer, Hewlett-Packard, Intel, Dell, IBM and the group’s own Proline range of computers. 

Pinnacle exceeded all expectations and has powered ahead to 440/c share at 14 June 2010. Prospects in the IT sector remain robust and we’re sure longer-term investors will be rewarded if they hang on to their investment. But from our side we’re happy to wear our profit taker’s hat and bank the 136.56% return on offer.  

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The best form of attack is...
Defensive shares are supposed to provide slow and steady protection during stock market turbulence. That’s why we picked Myriad Medical Holdings (JSE: MYD), picked on 18 March 2009 (MoneyWeek Issue 85) at 50c/share. The pharmaceutical counter had announced its fifth consecutive half-year of ‘positive’ trading results, but we had no idea what management had in store for us. They completed a ‘buyout’ of Litha Healthcare Group (JSE: LHG) during 2009 and then ‘reverse listed’ the Myriad business into Litha. Each Myriad shareholder received 79.16 Litha shares per 100 Myriad shares held.

Once the dust settled this pharmaceutical counter emerged as one of our top performers to 14 June 2010. Your investment return from this singleuse consumables and medical capital equipment supplier topped 85.22%! Once again – long-term investors can hold on to the share – but we’re happy to bank our profit at 117c. 

Against all expectations our top performing shares include a couple of ‘out of favour’ financial services counters. Old Mutual is up 56.75%, trading at 1254c/share against its purchase price of just 800c/share. We tipped Old Mutual at a particularly gloomy time in the company’s history, observing: “You don’t buy a life assurance company for the shortterm, but rather for its long-term prospects, including the potential for consistent dividends.” The jewel in this dual-listed company remains Old Mutual South Africa which owns life assurance company Old Mutual, asset manager Old Mutual Investment Group SA, banking giant Nedbank and (recently acquired) short-term insurer Mutual & Federal. There should be plenty more to come from this company and we’d hold at these levels. 

Coronation Holdings (JSE: CML) has also had a good run since its inclusion on 21 Aug 2009 (Issue 108). Currently 53.76% higher and trading at 1084c/share we’re inclined to hold on for at least another six months to a year. Analysts expect good things from the share, and it would be irrational to sell our position at this point in time. Standard Bank (JSE: SBK), tipped in Issue 86 at 7375c/share shot out the lights too. The counter is 42.37%  stronger and looks set to power ahead from its current R105/share. 

Losing appetite
A share you should take profit on is restaurant chain Spur Holdings (JSE: SUR). The ‘food’ story is one of a number of sub-sectors to benefit from the massive 2010 FIFA World Cup ™ playing out in South Africa right now. We tipped Spur on 9 March 2009 (Issue 84) and are more than happy with the 62.76% return since. Not too many investors will be quibbling over this return over just 15 months! One of the motivations for reducing exposure to this sector is World Cup sentiment has probably driven it as high as it can go in the shortterm. 

Industrial shares have enjoyed a tremendous run since their recessioninduced lows of early 2009. We snapped up shares in engineering company Howden (JSE: HWN) on 18 May 2009 (Issue 94) when the counter changed hands at 650c/share. Howden is a global supplier of fans, rotary heat exchangers, compressors and gas cleaning equipment to customers around the world – and remains a favourite of investors such as Momentum Life Insurance Limited and the Investec Emerging Companies Fund. The company has since surged to 1240c/share, an impressive 90.77%. We’re fairly bullish on industrials, but we’re going to take profit in this counter as certain sectors of the domestic economy remain shaky. There might be opportunities to get back on board at a later date. 

The other industrial star in our portfolio is Freeworld (JSE: FWD). Tipped on 16 February 2009 (Issue 81) this company has since achieved 56.25%. Its R10/share today and we’d rather hold it at this price on its longterm prospects. Freeworld has a number of operations in the paints and coatings arena. Its automotive coatings division should rebound further as motor vehicle sales improve through 2010/11.We also like its geographic diversity, with Plascon (in South Africa), Plascon Freeworld (the rest of Africa), Freeworld Coatings Australia and Freeworld Coatings Shanghai all contributing to the bottom line. 

Missing the resources boat
The one element missing from our short-term portfolio is resources exposure. For the most part we’ve stuck with smaller companies in the Gamble of the week portfolio, thus missing out on the likes of BHP Billiton, Anglo American, Kumba Iron Ore and similar Top-40 listed shares. Of course we’re lucky to have avoided Arcelor Mittal in this category – the country’s largest steel producer plummeted after a long-term ‘cost plus 3%’ iron ore supply contract was summarily terminated.

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We were rather let down by a couple of our resource sector picks. Keaton Energy (the coal producer) shed value as investors dealt with a variety of ‘coal’ concerns, while Simmer & Jack (gold and uranium) simply hasn’t delivered to its true potential. We can only hope these counters recover over the coming months. It was left to a couple of small cap mining sector picks to rescue some credibility for the resources portion of the portfolio. East Plats, picked at 551c/share on 30 October 2009 (Issue 118), has powered ahead to 920c/share. The bulk of South Africa’s platinum miners have enjoyed similar improvements, but the outlook for the platinum price remains of concern. At $1 550 per ounce we’re not too keen on the short-term prospects for the platinum mining sector. If you’re invested in Implats and Anglo Platinum then you can probably stay the course. We prefer to close our position in East Plats and bank our 66.97% gain. 

We’re much more positive, however, on the Xstrata-Merafe Chrome Joint Venture, held by Merafe Ferrochrome (JSE: MRF). South Africa produces an impressive 80% of the globe’s ferrochrome – an essential component in the production of stainless steel. The small cap share has climbed 40% since its inclusion in the portfolio on 3 July 2009 (Issue 101), largely on improving prospects for global stainless steel demand. Over time the group will return to full production and deliver to its potential. We’d stay invested in the counter on the strength of the ongoing economic recovery.

Strong ‘midfield’ performers
We added 36 distinct shares (some shares were picked more than once) to the MoneyWeek Gamble of the week portfolio through 2009. The bulk of these shares rewarded investors with handsome returns. Apart from those already mentioned, we had dozens in the +10% to +40% range. These include top domestic brands such as Spar, Discovery Holdings, agriculture plays Afgri and Zeder, and tobacco holding company Reinet to name a few. Some top names have returned 0% to 10%, but have been in the portfolio for a very short period of time. These include giants such as Steinhoff, Illovo and paper & packaging concern Nampak.

There were disappointments too. Apart from the resources shares Keaton (- 50.73% since 11 March 2009) and Simmer & Jack (-49.57% since 11 September 2009) we also briefly held African Dawn (though we recommended dumping the counter the last time we reviewed our portfolio) and paid too much for construction counter Mazor (-12% since 7 August 2009) in Issue 106. But overall we’re not unhappy with just four out of 36 shares in the red. The average gain from the 36 2009 picks (to 14 June 2010) is 29.46%. We calculated the return on shares ‘picked’ more than once based on their first inclusion date. 

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