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Buy signals for Next Fifteen Communications and IShares World Momentum (IWMO)

April 5, 2022

The Nasdaq 100 index is dominated by technology shares and the mega caps in particular. The mega caps. Apple, Microsoft, Alphabet, Amazon, Tesla and Nvidia, the only one not over $1 trillion, account for 46.5pc of this index so their strength is driving what looks like a reversal from the recent correction to a renewed uptrend.

Buy IWMO IShares World Momentum ETF. Buy @ $63.86. Times recommended: 16. First recommended: $37.05. Last recommended: $67.84

The top shares by weighting in IWMO are the same as the ones in the Nasdaq although not so heavily weighted. It is approximately 70pc invested in the US and has been a good performer since launch in October 2014, roughly trebling since then. As they put it the fund is invested globally in shares which have been experiencing an upward price trend. A point against this ETF is that since October 2014 the Nasdaq is close to quadrupling which makes QQQ a better investment and QQQ3 a much better investment. As subscribers know I love leveraged ETFs although they can behave in a surprisingly random fashion because of the daily rebalancing.

The reason for buying IWMO is that if Europe and the Rest of the World did start performing better relative to the US it might then start to outperform the Nasdaq 100 so it has a place in a diversified portfolio.

I have been going through my table of shares and the balance of shares looking stronger versus those looking weaker has been improving steadily, along with the market, since the middle of March although we don’t yet have loads of unequivocal buy signals. Personally, I feel more positive and think that the correction has run its course.

Next Fifteen Communications. NFC. Buy @ 1450p. Times recommended: 2 First recommended: 1120p. Last recommended: 1235p

This brings me to NFC, Next Fifteen Communications and what I call my three month rule. This rule does not have to be taken literally but encapsulates an important truth about shares and the stock market. The ideal period of consolidation for a share or index in a secular bull market is around three months. Much shorter and there is not the base to drive prices much higher; much longer and it becomes sticky and starts to turn into a long period of consolidation. Amazon is a good example. It has been stuck in a trading range since July 2020. I think it will break higher eventually but it is not easy.

NFC has broken higher and in the process given a strong buy signal, hence this alert. The chart looks good because of some exciting developments on the fundamental front. It also exemplifies my three month rule. The latest consolidation is exactly three months. The shares peaked in December 2021, traded sideways through January to March 2022 and have broken decisively higher in April.

In March NFC acquired a communications and creative agency called Engine for £77.5m part funded by a share placing to raise £50m. In connection with this acquisition they made the following comments.

“We are delighted to welcome the people and clients of Engine to Next 15. Acquiring this broad-based digital transformation, communications and creative business fits well with our track record and strategy of adding growth businesses which then contribute to our target of doubling the size of our business in the next three to five years. Its three businesses are home to great talent and strong client relationships and provide multiple opportunities to expand and further apply our growth consultancy services.
We look forward to working with the management teams, staff and clients of the three businesses at Engine and other industry leaders within Next 15 to execute our growth plan built on our model of independence, incentives and investment.

Another intriguing development at NFC is that they have just landed a massive contract.

“Next Fifteen Communications subsidiary Mach49 entered into a five-year strategic alliance with a technology and digital company, which is currently operating in stealth mode.  Mach49 would help create and launch a series of technology-driven, sustainable ventures across the world and generate total fees of more than $400m, including revenue of about $50m in the first year, according to a Wednesday release.”

Next Fifteen says it helps clients in four ways.

  • “We use data to generate the insights that help businesses understand the opportunities and challenges they face, and arm them with the knowledge they need to make the best decisions. 
  • We help our customers optimise their brand and build the mission-critical digital assets that businesses need to engage with their audiences. 
  • We use creativity, data, and analytics to create personal connections with customers to drive sales and deeper engagement. 
  • We help customers redesign their business model or create new ventures to maximise the value of their organisation.”

This all adds up to helping their clients to grow and the company says it has the ambition of becoming the world’s largest growth consultancy. This is not totally ridiculous for a business valued at £1.4bn but I imagine Accenture would describe themselves as a growth consultancy and they are valued at $218bn so this ambition must be about definitions as much as about growth.

An analyst who follows the group closely said that their success in landing a $400m deal (over five years) is particularly exciting because there could be more deals like this one out there. Bottom line Next Fifteen is an exciting blend of existing achievement, big ambitions, great chart and chunky something news. It looks timely to buy.

A simple strategy for an improving market is to act on new buy signals. I can see a pattern developing in my tables which are big enough to give me a snap shot, not of the whole stock market but of the bit I asm interested in – growth shares, what I also describe as 3G (great chart, great growth, great story). Last year growth shares began to falter and by early December the weakness was sufficiently across the board that on 6 December I sent out my alert – ‘Time to Circle the Wagons’. By 6 January conditions for growth shares had deteriorated even further and I sent out my ‘Charts look Terrible’ alert. January was indeed a terrible month for growth shares and the weakness continued through February into March.

But by mid-March I could see a new pattern with buyers coming in at the lower level for shares with outstanding fundamentals. This triggered my piece on 16 March headlined ‘A Hint of Spring comes into Markets’ and included recommendations for the mega caps and my favourite leveraged ETFs. Since then the tone of my alerts and publications has become steadily more positive although it still looks early days with many moving averages and Coppock indicators still falling.

My best guess is that the stock market has bottomed and will back and fill its way higher from now on powered by the globally accelerating technology revolution, the entrepreneurial vigour of the US economy which is hopefully being mirrored elsewhere and even by signs that worldwide the good guys are winning and the bad guys (yeah Putin, you miserable apology for a human being, I am talking about you) are in retreat.

It’s time for investors to be on the front foot again.

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