I sometimes wonder if coming up with shorts candidates is actually vastly easier than coming up with long positions. Spotting some real garbage seems easier work than carefully balancing the pros and cons of potential suitable worthwhile companies.
Last year, I recommended TCG (Thomas Cook Group) as one that was headed for trouble. And oh boy, did that turn out to be a spot-on call (unlike a lot of my other calls). I was thinking a few days as to what else I could recommend as stuff to avoid.
BSLA (Black's Leisure) is a company I highlighted as a short candidate on John Kingham's blog on Twelve for 2012. Perhaps it was a little too easy choosing BSLA. They've just announced that their shares have been suspended, and equity holders are likely to be completely wiped out based on indicative offers.
Another short candidate for 2012 to watch out for? Maybe I'm getting all cocky with my predictions on TCG and BSLA, but another "top of the crocks" might be GNG (Geong International). Trading at 13.5p on a PER of 2.2, it has net cash of £5.3m against a market cap of £5.1m. It looks like a net-net, but it's Chinese, the auditors have resigned recently, and debtors days is over 18 months and rising. Given its low PE, cash and net-net status it's a riskier thing to short, and their new auditors might be more permissive, allowing them to show revenue growth and pique investor interest. There's also some funny business about them drawing on their banking facilities, a puzzling move considering the company is showing net cash. All very strange, and perhaps indicative that the cash is as illusory as everything else in their financial statements. Anyways, I shall keep tabs on it.
I reckon my picks on John's blog should turn out OK. I'm in the process of writing up AFF (Afferro Mining) for the Motley Fool share competition, and the more I look at it, the more I view it as a "conviction pick". I don't necessarily think they'll go to the moon, but I think they're quite interesting and have potential.
Justin Urquhart Stewart was interviewed by Motley Fool on 30-Dec-2011, and one idea he raised was distressed debt investing, what with all the Eurozone fallout and all. He sees is as an area where someone can make a lot of money. It is an idea that I had been toying with during 2011, and his comments are increasingly solidifying my views. ICP (Intermedicate Capital) is a company looking to get into this area, and has been raising funds to capitalise on it. The directors seem quite enthusiastic about it. Maybe it's an idea that I need to look into more deeply.