Trading Diary

Trading Diary – 31 July 2019

We’ve made one sale this week in the Information technology sector. We’ve redeployed the capital released from this sale into the Consumer Discretionary sector.

Following these trades, the Model Portfolio is holding 18 stocks.


Integrated Research (IRI)

We purchased IRI at the end of June. At that time, both the fundamental picture and the technical picture appeared very strong.

IRI’s results are heavily influenced by several high-value sales that typically occur towards the end of June. The market had been behaving precisely opposite to how it had behaved last June before the announcement of earnings. Last year the stock was in a clear downtrend which climaxed in an 18% gap down on heavy volume when the company released profit guidance.

This year expectations were high that sales and pipeline growth would come in strong. Before the release of profit guidance, the stock had been showing signs of being in an accumulation phase.

The release of profit guidance on July 15 resulted in another gap down day. While the volume and range were not as large as last year, it was enough to show us that the stock was not yet ready to resume its uptrend.

There still appears to be a significant overhead supply of stock from sellers. This action was not reflective of a leading share in an uptrend. Not yet, anyway. As a result, for the time being, we’ve moved to the sideline.

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Collins Foods (CKF)

CKF spent the best part of the last two years in a trading range. During this period, the business has continued to expand its core KFC restaurant business.

As well as this they’ve added several new growth platforms.

They’ve expanded into Germany and the Netherlands by purchasing restaurants in each market. Both of these markets are underpenetrated by KFC. Therefore there’s a significant opportunity to grow in both markets.

The company also agreed with Taco Bell to roll the brand out across Australia. CKF currently operate 3 Taco Bell restaurants in Australia. The company plans to open a further ten restaurants this year and 50 within three years.

With the growth path laid out and execution underway, the stock emerged from its trading range in October 2018. There was a pullback during quarter 4 of last year along with the rest of the market. However, the pullback was not particularly severe, and it has recovered strongly this year. It appears likely that it’s now entered a stage two uptrend. As such, we’ve opened a position and as usual, will monitor closely.

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By Danny Sandler

Founder of Ocean Asset Management.