AIM delivers a mixed bag for investors at the mid-year

The top two best performing stocks on the Alternative Investment Market during the first half of 2012 were West African Minerals (LON:WAFM) and Magnolia Petroleum (LON:MAGP), which each delivered impressive triple digit percentage price increases despite unforgiving market conditions. Indeed, while the value of AIM’s market capital soared during the first two months of the year, it went on to unravel in spectacular fashion, leaving the market close to its 12-month low at the half-year mark. 

Top performers 

Stock volatility was never a concern for investors in West African Minerals, which delivered a 555 percent price rise – from around 10p to 70.5p – in the six month period. Directors Stephen Dattels and Jim Mellon have form for extracting impressive returns from mining ventures (in 2007 Dattels sold Canadian company Uramin to French group Areva for US$2.5bn). This time, the focus is on iron ore licences in Cameroon and Sierra Leone. While the stock soared without so much as a drilling rig in sight, the company cemented the rise with a 55p share issue in June, which raised £5.6 million. The shares went on to touch 90p in early July but have since edged lower. 

Meanwhile, shares in US exploration and production group Magnolia Petroleum rose from 0.5p to 2.5p during the first half – a 306% increase for investors. Magnolia’s focus is the Bakken and Three Forks Sanish plays in North Dakota, and the Mississippi Lime, Woodford / Hunton formations in Oklahoma. It typically farms-in to very modest stakes in development wells but gets involved in a lot of them (it had interests in 74 wells at the end of 2011). Over time, Magnolia plans to increase both the number of wells and the equity interest in each one. 

AIM’s churn rate improves 

In terms of the overall market, there are currently 1,133 companies on AIM of which 436 have seen their prices rise since the start of the year, 74 are unchanged and 623 have lost ground. In the first six months, 55 companies departed while 29 joined but analysts claim the numbers reflect an improving picture in spite of the ongoing economic uncertainty in the Eurozone. Indeed, as many as 73 companies per quarter left AIM during the peak of the recession. 

What’s working for investors? 

From an investor perspective, the story of the second quarter for investing strategies has been largely about growth. Despite cruel market conditions, Stockopedia’s Peter Lynch growth screen has delivered a 13.7 percent return over three months with a basket of predominantly AIM quoted stocks including the likes of Prezzo (LON:PRZ) and Portmeirion (LON:PMP). 

On an annualised basis, a value investing screen inspired by Bill Miller of Legg Mason Capital Partners still leads the pack with an annualised return of 64.2 percent, albeit from a small basket of stocks. Dividend hunters will welcome news that the second best performing strategy on an annualised basis is the high yield-focused Best Dividends screen, which has returned an impressive annualised 42.8 percent. The portfolio of 41 stocks in that strategy is led by AIM quoted construction business, Interior Services (LON:ISG). 

Finally, in Stockopedia PRO’s Stock Rankings, which tracks the number of guru investing screens that stocks qualify for, the current top AIM performer is Asian Citrus Holdings (LON:ACHL). Asian Citrus is dual listed in Hong Kong and claims to be the largest orange plantation owner and operator in China. It currently passes seven stock strategies, including two Warren Buffett inspired quality screens. Recent weakness in the company’s share price has also qualified it for the value strategies of Benjamin Graham and David Dreman. Interestingly, Asian Citrus is one of AIM’s small contingent of dividend paying stocks and has a forward yield of 6.5 percent; it is also currently buying back stock in the market. Stock screening is just a first step and Chinese companies bring with them their own research challenges for UK investors, so more in-depth analysis of Asian Citrus would of course be a must. Nevertheless, it will be interesting to track how such a screen-heavy stock performs over the medium term.

All to play for 

With around 25 AIM stocks delivering share price improvements of more than 100 percent during the first half of 2012, investors would be forgiven for not worrying too much about the general health of the market or the listing / delisting numbers (although the proposed delisting of IFA group Lighthouse has rattled shareholder groups – I’ll come back to that in a future post). Perhaps more of a concern is that precisely 100 stocks lost half their capitalised value during the period, which only reinforces the need for careful stock selection strategies and vigilance at all times.