Lucky (or astute) shareholders in mineral exploration company Marianna Resources (LSE: MARL) saw their holdings shoot up 50% this morning on the news that the directors have agreed to the terms of a recommended takeover bid from Sandstorm Gold.
Why I’d take the money and run
Faced with sudden large profits in my portfolio like this, I would almost always nail them down by selling my shares.
It’s well-known that most private investors fail to beat the market and I suspect that many fail to make profits on the stock market at all, or they even make a loss over time. Successful US trader Mark Minervini reckons that many investors underperform by giving back profits on previously successful positions. I’ve done a few boomerangs like that myself over the years, but well-known investors such as Warren Buffett and Peter Lynch built their investment gains by taking profits at some point when they had them, and I’m doing much more of that these days, too.
One rule of thumb that helps me is ‘the faster the gain, the faster the sale’, and I’d use that with this Marianna Resources situation. Arguably, the potential in the short term, and possibly for the medium-term, has been realised today for existing shareholders, and to hold on means to invest in the enlarged Sandstorm Gold for the firm’s longer-term prospects.
On top of that unknown, there is always the possibility that this deal could fail to go ahead and the 50% gain could reverse. If that happened I’d feel sick, so selling would protect me from that unpleasantness! One of the great private investor advantages is mobility. We can be nimble and move fast because the smaller size of our shareholdings is less likely to create liquidity problems that lock us into positions. Maybe mobility is underused by many.
Where I’d invest my winnings
One of the firms I find most interesting right now has a return on capital running just below 30%, double-digit percentage forecast earnings growth, rapid growth in the dividend and strong operational and share-price momentum.
Luceco (LSE: LUCE) arrived on the London stock market in October and sits in the FTSE Small Cap index. Since admission, the shares have demonstrated a clear upward trend, driven by sound operational performance.
Luceco describes itself as “a manufacturer and distributor of high quality and innovative LED lighting products, wiring accessories and portable power products” and is responsible for brands such as Luceco, BG Electrical, Masterplug and Ross.
Business is brisk, and earlier this month the firm delivered full-year results revealing revenue up almost 30% compared to the year before, an adjusted profit margin 53% higher, operating profit inflating by 18% and a 60% uplift in earnings per share. Impressive indeed, and it looks like more is to come. Chief executive John Hornby said, “We completed a major expansion of the Chinese manufacturing facility and we are continuing our growth strategy with a strong pipeline of product launches and extending our sales and marketing platforms both in the UK and overseas.”
At today’s share price of 251p, Luceco trades on a forward price-to-earnings ratio of just under 21 for 2018, which seems on the high side, but as a mark of quality, such a rating seems well deserved.
