Midas Extra share tips: Poundstretchers portfolio

By Joanne Hart for The Mail on Sunday
Updated: 12:25 EDT, 16 February 2010

Six months ago, Midas began a share portfolio with a difference. Called Poundstretchers, the portfolio invested in ten stocks that cost less than a pound, but were deemed to have significant growth potential.

Penny shares are different from FTSE 100 stocks – and not just because they are smaller. Smaller companies are invariably less liquid than larger businesses so it can be more difficult to buy and sell their shares.

They are also more volatile so they may soar in value or crash to earth with a bump.

That said, shares this cheap can be fun. And our portfolio has done rather well.

The ten shares we invested in were: Asterand, Deltex Medical, Mercator Gold, International Ferro Metals, Emed Mining, Rockhopper, Service Power Technologies, Universe Group, IDOX and Clipper Ventures.

Our best performer so far is Rockhopper, which was 48p when we recommended it in December and is 95p today, a rise of 98%.

The company runs an oil exploration business in the Falklands and, although it is still at the exploratory stage, if it strikes lucky, the shares will absolutely rocket.

In the meantime, the stock was given a boost when mining giant BHP Billiton took an interest in the Falklands region.

The belief is that if a company like BHP is prepared to invest in oil exploration down there, that is an extremely good omen.

Rockhopper is well managed and well-funded. Investors who moved in last December could sell half their shares now but they should keep hold of the rest and watch for further developments.

The second best performer was Asterand, which sources human tissue from hospitals around the world and sells it to pharmaceutical groups for drug testing. The business may sound a bit grisly but the market is worth hundreds of millions of pounds, it is growing by about 20% a year and Asterand is one of the leading players in the field.

The shares have risen 70% from 5p to 8.5p over the past six months, following the introduction of cost-cutting measures and news that Asterand won a £1.5m contract with the US Department of Defence. The company has been loss-making but it is expected to report maiden profits this year. Stick with it.

International Ferro Metals has also performed exceptionally well, rising 67% from 83p to 140p. The company produces ferrochrome, which makes stainless steel stainless. The steel market is soaring and news from IFM has been extremely encouraging in recent months. Another stock to hold.

Our other positive performers were Emed Mining up 20% to 26.5p and IDOX, up 15% to 13.5p. IDOX helps businesses to be more efficient, by transferring paper records onto computers. The company works with local authorities and other customers and most of its competitors have been acquired by larger groups. Brokers believe the same could happen to IDOX. On a fundamental basis, this business looks undervalued but there is the added excitement of a possible bid. Hold.

Emed is a particularly exciting company. It owns a copper mine in Spain and is seeking licences to allow it to start mining. News should be forthcoming on this issue either at the end of the Summer or next Spring and mining experts believe the licences will be granted. If Emed does get the go-ahead, the shares could soar. Keep a close eye on this one over the coming months.

Regrettably, some of our recommendations have fallen since December. The most disappointing performance came from Service Power Technologies, which installs and repairs products in the home but also helps companies to run these types of services more efficiently.

One of the systems that SPT has devised for instance, allows retailers to offer customers home deliveries within one or two hour slots instead of asking people to wait in all day. The shares have fallen from 15p to 6p, largely on the back of concerns about the wider housing market and consumer environment but over the next few years, the company has considerable growth potential.

Deltex Medical makes equipment that monitors blood fluid levels during operations and afterwards in intensive care. Tests show that if blood fluid levels are kept at the proper rate, patients recover much more quickly. Hospitals and health authorities can be slow to endorse new products and this has not helped Deltex case but the situation could, and should, change and the shares, which fell 21% to 18p, are still worth a punt.

Mercator Gold shares are 32% down at 56.5p but this stock has been badly treated. The company missed its production targets by a whisker earlier this year but it has no debt and should soon start churning out gold from its mines. Hold on and be patient with this stock and it should deliver.

Clipper and Universe fell by 14% and 24% respectively. Universe Group, 5p, manages loyalty cards for petrol stations and self-service car washing machines. The market is large and Universe could do well over time. But it has had some teething problems and is still trying to find its way.

Clipper meanwhile owns the Round the World Yachting Race and is trying to secure sponsorship for future races. It was pursuing the same course six months ago and investors have become a little bored. If sponsorship materialises, the shares, at 12.5p, should rise considerably.

Shareholders who are fed up with these two stocks could move into Immupharma, which is in the late stages of testing a drug to cure lupus, an extremely unpleasant disease where the body starts attacking itself, causing pain, inflammation and organ damage.

Immupharma shares are at 71p and if its drug is approved, the stock should rise considerably.

Overall, Midas believes shareholders could do worse than stick with the original ten Poundstretchers. Even taking into account the fallers, the portfolio has gained 12% on average.

Over the same period, the FTSE All-Share index has crashed from 3252 to 2984, while the Aim index has fallen from 1047 to 997. Our Poundstretchers are living up to their name. Let's hope they continue to outperform.