Our 2023 Picks: How did we get on in February?

February and March are going to look like two very different months from a volatility perspective. Last month investors remained very focused on central bank policy and inflation rates. The big question was when the signal was coming to get back into equity markets. There remains a lot of 'dry powder' on the side lines of this market, waiting for the opportunity to buy back into shares.

A conversation with a big European family office this week demonstrated to me that very large investors are not going to time their entrance back into small caps until some larger macro issues are resolved. While we saw a rally in January and February, some analysts were rightly concerned about the historic highs indexes were hitting: this is always time to consider valuations in the market and whether the recent relief rally has been over-egged.

Our focus in our venture and long term portfolios continues to be on undervalued companies where we can see both the reasons why they are oversold and also some catalysts that will change that. Low to zero debt and solid growth in the revenues are also essential in most cases.

Michelmersh Brick Holdings

We added Michelmersh Brick Holdings [LON:MBH] to the portfolio in February. This could be a controversial pick, as housing and construction in the UK is one of those on again off again sectors, heavily tied to inflation and UK rates, both of which were still high and getting higher going into Q1. Michelmersh does however have a line of business into specialist and sustainable brick products which are increasingly being called for in big marquee construction projects. of which Michelmersh has supported several recently. One fund manager told me this is more of a 'steady Eddie' growth play, but I think it could deliver some good numbers for investors over the medium term.

FIS

Our catalyst for putting on a trade on Fidelity National Information Systems, aka FIS [NYSE:FIS], was the news that the company was disposing of Worldpay. We note that a number of activist investors on the shareholder register were pushing for this, among them no less a name than DE Shaw. We also rate Jana Partners as an activist and note their involvement here too. FIS shares were down 45% since it bought Worldpay. We ran the metrics on FIS and even with Worldpay in the mix, the stock looks pretty healthy and dare I say it, undervalued. It measures up extremely well against the likes of Visa and Mastercard.

Warpaint London

I've been singing the praises of Warpaint [LON:W7L] to fund managers recently. We are up 8.3% already on this trade. We like the way this cosmetics company is uber responsive to the fast moving decorative appetites of teenagers and twentysomethings. It also has a pricing strategy which matches the reality of inflation in the UK, which will see consumers spending less on more expensive make up. I've always considered make up products to be awfully over-priced for what they are. It's also great to see James Crux at Shares magazine mentioning Warpaint in the same article as Ultra Beauty and Estee Lauder this week! The resilience of the beauty sector in these times is not to be underestimated.

Pineapple Power

Special mention of cash shell Pineapple Power [LON:PNPL], which is back on the market, and saw shares soar over 50% as it announced the appointment of former ITM Power CEO Dr Graham Cooley to its advisory board, as reported on this site on 20 February. This is a big coup for Pineapple Power, as Cooley exercises considerable influence in the green energy market and is known for his connections within the hydrogen space, as well as advising the UK government on green energy strategy. Subsequent to his appointment with Pineapple Power, he was also named as the new chair of H2 Green, boosting the shares of its owner Getech by 13% on the news. Watch this space.

Of note: Our Brent Crude short position is up 10% at the end of February and continues to perform well in March. The SPDR Gold Shares ETF has been rangebound since we added it but the Gold price has picked up dramatically this month  owing to the current banking volatility. This demonstrates the value of holding a gold hedge in the portfolio when navigating rougher waters.

Sold in February: None.

So how are our picks getting on?