To celebrate the launch of his new book next month Robbie Burns AKA The Naked Trader delivers a special guest article on one of his favourite strategies. Plus details of a new SharePad filter so you can try the strategy yourself.
There are loads of strategies to suit most traders/investors, except those of you who insist you can play the Forex casino and expect to win – the house always wins. Fortunately (and let’s just get the plug out of the way now shall we!) I have a new book about to be published “The Naked Trader’s Book of Trading Strategies”. To celebrate the release next month I have also given 5 upfront copies to the team at SharePad to giveaway in a competition – check your SharePad / ShareScope emails and the SharePad homepage for more details or just give the support team a call as ever.
Although I have used and worked with the team at SharePad for almost 2 years this is my first ever article for them, so I thought I would pick one of my favourite strategies from the book to talk about “Dash for Cash”.
Cash is unfashionable these days. Sometimes you can’t even get a cup of coffee with a £5 note. “Cards only, please.” Well, stuff you. I’ll go to the café next door which takes cash – the coffees better too!
But with interest rates rising, buying companies with a decent cash pile can prove a great strategy. If the company you find has a big cash pile and profits are rising and things look good – well, even better.
When I say cash, what I am after is a net cash figure.
Pretty much all companies give a net debt or a net cash figure with every full or half-year report.
I’m no accountant and it doesn’t reveal everything, of course, but a decent net cash amount is definitely positive.
When I see net cash, I smile. It makes me feel it’s unlikely anything catastrophic is going to happen. And when there’s net cash there’s the possibility of a company using that money: for share buybacks, acquisitions or big dividends. All of which should help a share price.
I’m not saying just look at net cash. I’m saying if you find a company with good net cash, it is worthy of further inspection.
To make that look a little easier I’ve asked the SharePad team to put a screen on their filter library and you should now be able to find “Robbie Burns (The Naked Trader) – Dash For Cash screen”.
To apply this screening filter yourself to any list. Follow these instructions:
In the short term: Head to the SharePad homepage via the “house” icon in the top navigation > scroll down to Support & Training section > Latest Stock Screen > Click on blue button to automatically install and apply the screen
At any time in the future: Apply or manage filter > Library > Search “Robbie Burns” > Click on filter > Click Install > Close > Select filter in your filter list > Click ok to apply screen.
Now let’s look a little closer at an example from the screen results in the form ME Group (MEGP).
There is a ton of net cash here. Now let’s look at forecasts too. Click on SharePad’s Financials tab, go to Forecasts and check “net borrowings”.
It gets a touch confusing as a minus figure is good rather than bad as you might think.
A minus figure is, er, well positive!
ME shows minus £40m for 2023 then minus £59m and minus £85m for 2025 (at time of writing). If these forecasts are right then the cash pile is only going to build further.
Cash on the balance sheet usually means things are going well.
It could also mean the company using that dosh to give money back to shareholders (dividends), to buy back its own shares (raising their value), or to acquire other companies (resulting in a bigger and more valuable firm).
Companies with big cash often also hand out special extra dividends which ME Group has done in the past.
I’m not saying just buy companies with big cash piles. I’d also want to see rising profits, dividend and a good outlook.
ME Group also qualifies for two other different strategies in the book.
One is pinpointing companies about to get promoted to the FTSE 250 or 100.
Tracker funds have to buy into promoted companies and that often gives a bump to the share price for a while.
As I write this ME has gained its promotion which appears to be lifting the price – said company usually also gets a higher profile.
ME also qualifies for a third strategy from the book – “trading ahead of expectations”.
If you’re buying companies who consistently use the phrase “ahead of expectations” or even better “substantially ahead” then you should be looking at a consistently rising share price.
Till next time, all the best to everyone entering the book competition!
Robbie is an Isa millionaire who has written the best-selling “Naked Trader” series of books. He hosts online seminars and trader retreats in Spain. See his website nakedtrader.co.uk. His latest podcast is here:
This article is for educational purposes only. It is not a recommendation to buy or sell shares or other investments. Do your own research before buying or selling any investment or seek professional financial advice.