If you want to see just how bad things can get, take a look at Tullow Oil (LSE: TLW). 

The recent plunge in the company’s value – leaving it trading on a little under 70p as I type – is nothing compared to the long-term trend. Go back almost eight years, to March 2012, and the stock was trading at over 1,500p.

So, it’s now a bargain?

Not so fast. Tullow’s now in a very sticky spot for a number of reasons: production guidance has been slashed, the company is currently rudderless following the resignations of both its CEO and exploration director, and the balance sheet is still under severe pressure, suggesting a fresh bout of fundraising is likely. 

All companies experience problems. Indeed, I’d be willing to stick with a stock if there was reason to believe it might recover and pay dividends to compensate holders in the meantime. Unfortunately, the latter is no longer the case with Tullow as the dividend has now been cancelled. 

There may be talk of it now being a takeover target but this should never be the sole reason for taking a position in a business. I’m steering clear. 

Shorter’s heaven

Industry peer Premier Oil (LSE: PMO) is another energy stock I’m wary of, albeit for a slightly different reason.

As I’ve said many times before, it’s always worth keeping an eye on what short sellers are doing. For those new to the investing, these are traders that bet against a company’s share price.

Given the volatile nature of the industry, it’s not exactly surprising if a few oil stocks make the list of shorting favourites. Premier Oil, however, has recently shot to the top.

Some readers may be scratching their heads. As my Foolish colleague Rupert Hargreaves explained recently, recent production has been healthy, and investors have embraced the idea of asset disposals. On the face of it, Premier seems a different beast from Tullow.

Or is it? Like Tullow, the investment case of Premier makes sense when the price of black gold is sky-high but it’s less than ideal if it’s falling or stagnating. 

This explains why a fund based in Hong Kong – Asia Research and Capital Management – has taken a massive short position on the stock as a hedge on its own $380m holding of the company’s huge debt pile. This way, it has some protection if the oil price stays low until the debt becomes repayable.

The fact that ARCM has stated that this is normal practice may help to assuage concerns, but it’s not exactly a ringing endorsement of Premier’s position. Ask yourself: if professional investors feel the need to make such a massive bet against a company they already have an interest in, do its shares truly represent the best opportunity for retail investors to make money?

If you’re tempted by either Tullow or Premier, I think the message is simple: only put cash in that you can afford to lose. 

The post Tullow Oil isn’t the only stock I’m running a mile from appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

1. What goes up…

Thanks to another 12 months of political squabbling, the performance of the FTSE 100 over the year to date have been decent but hardly spectacular (up 7%). Across the pond, however, it’s been another cracking year with the S&P 500 soaring 25% and breaking more records on the way.

I doubt many would have predicted this at the start of 2019, especially as the US market was already priced at levels only seen twice before — prior to the Wall Street Crash of 1929 and before the dotcom bust in 2000. 

Something will give sooner or later, of course, but that’s not to say the market won’t continue going up between now and then. Indeed, 2020 could be another great one for those invested in the world’s biggest economy.

What can we conclude? Simply that market timing is very difficult, if not impossible, to do. Even top fund manager Terry Smith suggests it’s probably best not to try.

If being fully invested at all times feels hard, however, try drip-feeding your money instead. 

2. Adapt or die

Every year brings its fair share of market casualties. Some companies fall out of favour only to bounce back to form eventually. Others fold completely. 

Arguably the most high-profile example of the latter in 2019 has been package holiday operator Thomas Cook. While poor weather and our EU departure were contributing factors, it was the company’s failure to realise that more of us were arranging our own holidays online until too late that sounded its death knell.

The lesson from the above is that it’s absolutely vital for every retail investor to ensure they only back companies that are demonstrating a willingness to adapt to changing attitudes and behaviours. Since individual stocks tend to be far riskier than diversified funds, you should also only back them with money you can afford to lose. Having said this…

3. Watch for drift

Arguably the biggest shock (and subsequently, the most painful lesson) for investors in 2019 has been the suspension and eventual closure of Neil Woodford’s Equity Income Fund. 

A toxic mixture of bad news and strategy drift has left the former Invesco man’s reputation in tatters (not helped by his decision to continue charging fees while the fund was suspended) and hundreds of thousands of retail investors licking their wounds. As things stand, no one knows exactly how much money the latter will lose by the time it’s wound up. 

Perhaps the learning point from this still-to-be-concluded sorry tale is that no one — not even an experienced fund manager — can guarantee you anything in the market. The only thing that’s certain is that they expect to be paid for trying.

Woodford’s fall from grace also shows the importance of monitoring whether your chosen manager’s actions are in accordance with their fund’s overall strategy, more so than how each and every constituent of their fund is doing.

If all this sounds like too much trouble, then switching to a passive approach, either partly or fully, and buying exchange-traded funds that ‘merely’ track the returns of indices might be more appropriate. 

The post 2019’s biggest lessons for investors appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Unfortunately, that’s exactly what’s happened to a household name from the FTSE 250, at least according to shorttracker.co.uk. And, no, it’s not a struggling retailer or a risky oil play. 

Debt-ridden

Shares in Cinema chain Cineworld (LSE: CINE) have fallen heavily in recent months and, based on shorting activity (11.5% at the time of writing), a significant minority of traders think there’s more pain to come. 

Much of the concern appears to stem from the company’s takeover of US rival Regal Entertainment and the huge impact this has had on its balance sheet. In August, Cineworld sought to quell these fears by announcing that reducing this burden was “ahead of schedule” following the repayment of $570m in term loans. Nevertheless, recent share price action (and the fact that adjusted net debt of $3.3bn is still almost 20% more than the company’s entire market cap) suggests that not everyone is convinced this sort of progress will continue. Nor does everyone think that synergies from the acquisition will come in as high as the estimated $150m. 

But debt isn’t the only potential weakness in the investment case. 

As star fund manager Terry Smith remarked during a speech earlier this year, most companies involved in the entertainment industry in some capacity have very little visibility when it comes to predicting earnings. Even critically-acclaimed films can do badly and ‘guaranteed blockbusters’ can bomb. On top of this, cinema operators have to contend with the growth in popularity of streaming services such as Netflix, Amazon Prime and, more recently, Disney+ (although the last of these won’t become available in the UK until next year). This doesn’t necessarily spell doom for trips to the flicks, but it must be considered by anyone thinking of investing. The more popular streaming becomes, the more management need to drop prices to lure people out of their homes. That’s particularly problematic for companies such as Cineworld considering the amount of money it is spending refurbishing its screens. 

Contrarian bet?

Having lost a third of their value since April, the shares currently trade on just 8 times forecast earnings. That’s usually the sort of valuation that gets value investors salivating. The company is also expected to return a total of 18.3 cents per share in the current financial year, which equates to a chunky yield of 7.1%. At the moment, it looks like profits will cover this amount. However, the aforementioned risk of earnings underperformance if presumed hits like the new Star Wars, James Bond and Top Gun films fail to grab audiences could make the threat of a cut more likely. 

There’s something in the suggestion that cinemas might be more resilient in the event of an economic downturn when compared to other, more expensive forms of entertainment, but I struggle to believe that operators such as Cineworld will thrive in such a scenario. Factor in the short interest, and I’m content to let this ‘opportunity’ pass me by.

The post There’s a NEW most-hated stock on the market. Do you own it? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Notwithstanding this, it does seem logical to suppose rivals to the 178-year-old firm will be benefit from reduced competition. One is On the Beach (LSE: OTB). 

According to today’s (brief) update, trading over the year to the end of September has “remained in line with management’s revised expectations for the full year.” While encouraging, it’s arguably more important the company went on to state the aforementioned liquidation of its rival had “created an unprecedented opportunity to take additional market share at an increased rate” and it would be increasing its marketing spend as a consequence. 

The post Thomas Cook is gone and this growth stock looks set to benefit appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended On The Beach. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But it’s not just independent, budget-conscious travelers that like what they see. Many of us are now renting out our own properties for a few days a year to make extra cash. Despite this, there are some very valid reasons why you should think twice before joining them.

More trouble than it’s worth?

Think the taxman won’t be bothered by the fact that you’re considering making money on your property as a side hustle? Think again. Unfortunately, the £7,500 tax-free allowance given to those renting out their rooms is now only available to those still living in the house/flat at the same time. If this isn’t the case, then you can only claim relief on £1,000 a year under a separate allowance.

On top of tax considerations, you also need to make sure your mortgage provider is happy for you to let your (their) property. Keeping schtum is fraudulent. Even if you do tell them, they may refuse, or slap you with a fee.

All this comes before we’ve even considered your guests. While most are unlikely to cause problems, expect a minority to leave your property in a bad state. Some may steal from you. Regardless, it’s your job to clean up afterwards, or hire someone else to do it. Like eBay, how much money you make can also depend on the feedback you receive. 

Taking these issues into account, I don’t think hosting is worth the hassle, particularly when you can make money from doing a lot less. Yes, I’m talking about the stock market and, specifically, dividend-paying stocks.

Get paid for less

The beauty of generating an income from shares is that it can take only a few minutes to set up. Track an index like the FTSE 100 through a cheap, exchange-traded fund from the likes of Vanguard or iShares, and you’ll receive regular dividends. Right now, these funds yield approximately 4.6%.

You could just leave it there. For those willing to hunt for specific companies offering great yields, however, the process takes a bit longer. The key here is to steer clear of those offering the highest yields and focus instead on firms that have low payout ratios, a history of consistently raising their dividends, and whose profits are sufficient to ensure cash returns aren’t cut. 

Unlike Airbnb, dividend stocks also won’t give you a tax headache. So long as you hold everything in a Stocks and Shares ISA or a Self Invested Personal Pension (SIPP), you won’t be liable to give back any of the income you receive. Should your shares rise in value, you won’t pay tax on any profits when you sell either.

And while stocks can go up and down in value, they’ll never post nasty comments about their owners. Truth is, stocks don’t care who owns them. All told, generating an income from investing is both easy to instigate and fuss-free to maintain, compared to Airbnb. Why not use some of the former on a nice break instead?

The post Forget Airbnb. I’d rather generate a second income stream through dividend stocks appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The former has lost 95% of its value in just 18 months due to a major accounting error, savers rushing to withdraw their cash and a poorly received (and subsequently pulled) bond issue. To say that the challenger bank finds itself challenged is putting it lightly.

Kier’s recent performance is equally shocking. Over the last 12 months, the share price has fallen 86% for many of the same reasons: an emergency cash call, an accounting error, and a profit warning. Restructuring costs remain a drag and Brexit continues to cast a shadow over the property, residential, construction and services firm.

With things looking so bleak, it’s natural that some should try to find a way of profiting. As I type, both Metro and Kier rank among the most shorted stocks on the London Stock Exchange. In other words, investors are making sizeable bets that the share prices of both are likely to fall further. 

Regardless of what you feel about the ethics of short-selling, it can be very lucrative. Many of those that wagered against market casualties like Carillion and Debenhams made a lot of cash in the process. That’s not to say it isn’t high-risk — losses are technically infinite if they get their calls wrong and share prices rise.

There is, however, another business that’s more hated than either Metro and Kier. 

The silver medal goes to…

With 9.7% of its stock currently being shorted, FTSE 250 member and oil services provider Wood Group (LSE: WG) ranks second in the leaderboard and above both Kier and Metro. Worryingly, the only company with more short positions hanging over it is Thomas Cook. 

At first glance, this all seems a bit harsh, especially when you take the company’s recent interim results into account. Back in August, the Aberdeen-based business revealed a $13m profit over the first six months of 2019 compared to a $52m loss over the same period last year (despite logging a 2.6% decline in revenue to $4.8bn). Wood also maintained its outlook for the full year and stated that it was “well-positioned for growth across the energy and built environment markets” beyond this.

Unfortunately, the market just doesn’t seem interested, with the fall in Wood’s share price over the last year showing no signs of abating just yet. Arguably the biggest concern is the amount of debt the company still carries.  

Net debt stood at $1.77bn by the end of June, 14% higher than at the same point last year. And while the sale of its nuclear business for $305m is expected to reduce leverage once the deal is completed in Q1 2020,  it would appear some also have concerns about Wood’s limited exposure to the recovering offshore and liquid natural gas markets compared to rivals.

A price-to-earnings (P/E) ratio of just over eight might look cheap, but there’s certainly an argument for saying that even this valuation might come under review if the health of the global economy were to deteriorate. At 8.3%, the yield is one of the highest in the FTSE 250 but dividends are, somewhat ominously, barely growing.

The shorters have been wrong in the past — Ocado being a perfect example. Could they have got Wood Group wrong as well?

The post This FTSE 250 stock is even more hated than Metro Bank and Kier Group! appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As is often the case, a combination of debt and a deterioration of trading did for Thomas Cook. Now, most companies have debt, and deciding whether it’s at a dangerous level and assessing the trading outlook are more art than science.

Deterioration

Going back to last year, not all writers here at the Motley Fool were of the same view on the prospects of Thomas Cook. On one hand there was an argument that the “level of reward is certainly worth the risk,” and on the other, “with debt up sharply and an uncertain outlook,” the stock was one to avoid.

However — and unusually given the number and diversity of Foolish writers — we’ve been uniformly negative on Thomas Cook all this year. And the negativity became louder and more frequently stated as time went on.

Regularly reading the Motley Fool might help you avoid the next Thomas Cook-style wipeout, but you may be interested in the three factors that informed my own escalating negativity on the stock. I call them the Deadly Triad.

Short sellers

Short sellers of a stock profit if its price falls. I always keep an eye on short positions in stocks via shorttracker.co.uk. There were no disclosable short positions in Thomas Cook early this year, but they increased rapidly over the months, latterly making it the most shorted stock on the London market. Such a rise in short positions should ring alarm bells with investors.

Debt market

In addition to bank borrowings, many companies with debt have corporate bonds that are publicly traded. In Thomas Cook’s case, these began to trade at a significant discount to their face value towards the end of last year and dived below 50 cents in the euro in mid-May. When the debt market is pricing in such a loss on the bonds (which rank above equity), the equity is likely to end up worthless or of purely negligible value at best. Plummeting bond values are another thing that should ring alarm bells with investors.

Shareholders and stakeholders

The completion of the Deadly Triad in Thomas Cook’s case came in a statement from the company on 10 June. Up until this point, the directors had talked of maximising value for “shareholders”. The announcement on 10 June referred to “maximising value for all its stakeholders.” (My bold.) It’s a subtle change of terminology, but you can take it as code for the situation has deteriorated to such an extent that shareholders are no longer the primary focus of the directors’ fiduciary obligations. All the alarm bells in the world should be ringing with investors when a company gets to this stage. In the case of Thomas Cook, its shares were trading at around 18p at the time.

Foolish bottom line

In an article about Sirius Minerals, my colleague Alan Oscroft suggested it’s a big mistake for shareholders to think “there’s no point selling at such a big loss” and “they’re so low they’re not worth selling now.” I agree with Alan. If you think the evidence points to the equity having zero or negligible value, it’s better to salvage what capital you can, while you can.

The post Alert! How investors can avoid the next Thomas Cook-style wipeout appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The shares continued to fall through the day, closing 60% down at 5.38p. Here, I’ll explain why I think the only sensible thing continues to be to sell, even at this further reduced price. Conversely, for investors looking for a solid stock in the travel sector, I’ll discuss why I’d be happy to buy FTSE 100 cruise ship operator Carnival (LSE: CCL).

Brace for impact

Here at the Motley Fool, we’ve been warning readers for some time that Thomas Cook’s debt has become a big, big problem. Indeed, that the company’s been firmly on a flightpath to a debt-for-equity swap, and that such a recapitalisation would leave existing shareholders with little or no value.

The reason the share price went into a tailspin on Friday was the announcement of a “proposed recapitalisation” (with a profit warning lobbed in just for good measure). The key elements of the proposal, which are subject to all manner of conditions and uncertainties, are a £750m injection of new money, and a “significant amount” of bank and bond debt converted into equity (gross debt at the half-year-end stood at £1,708m).

The company warned: “Existing shareholders will be significantly diluted as part of the recapitalisation.”

Chief executive Peter Fankhauser made no secret of where the board’s priorities now lie: “While this is not the outcome any of us wanted for our shareholders, this proposal is a pragmatic and responsible solution which provides the means to secure the future of the Thomas Cook business for our customers, our suppliers and our employees.”

Typically, in these situations, existing shareholders end up being offered a choice of accepting peanuts or, if they refuse to back the refinancing, taking a total loss on the company being put into administration. Therefore, I’d value the shares at somewhere between 1p and 0p.

Cruising on

By contrast, Carnival’s business is underpinned by a strong balance sheet, and while it’s faced some headwinds of late, these pale into insignificance compared with Thomas Cook’s. I think the weakness in Carnival’s shares — down from over 5,000p less than a year ago to little more than 3,500p today — offers a great opportunity to buy into the world’s biggest ocean cruise operator.

The industry is an attractive one, with passenger numbers increasing 6.6% a year, and plenty of growth to come. According to industry monitor Cruise Market Watch, there’s considerable untapped potential. For example, it notes: “All the cruise ships in the entire world filled at capacity all year long still only amount to less than half of the total number of visitors to Las Vegas.”

The aforementioned headwinds Carnival has faced in the first half of the current year include voyage disruptions related to Carnival Vista and a US government policy change on travel to Cuba. As a result, management has modestly downgraded earnings guidance. However, I view the rating of the stock at 10.3 times earnings as undemanding, and a prospective dividend yield of 4.3% as attractive.

The post Why I’d still shun the Thomas Cook share price at 5p appeared first on The Twelfth Magpie.

More reading

• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

While this is likely to be a challenging period for such investors, I think it is worth persisting with the stock market. Even though it can cause huge disappointment in the short run, over the long term it has the potential to deliver high returns that may lead to an improved financial outlook for investors.

Return prospects

Although the main UK index, the FTSE 100, may be trading less than 10% higher than it did almost 20 years ago, its long-term growth potential remains high. At the present time, for example, it appears to be undervalued versus its past price levels. It currently has a dividend yield of around 4.5%, with its income return having been at or above this level only for short periods in the past. Often those periods have coincided with a highly uncertain outlook for the world economy, which could mean that the index offers a wide margin of safety for new investors.

Moreover, the index was grossly overvalued two decades ago. In fact, it had risen at an annualised rate of around 13% in its first 16 years of existence (between the start of 1984 and the end of 1999). This led to high valuations across a wide range of companies at a time when the tech bubble was growing rapidly. Due to its overvaluation two decades ago, it is perhaps unsurprising that it has recorded more modest returns in subsequent years.

Growth potential

Looking ahead, the stock market could experience heightened volatility. With the global trade war continuing to grow in terms of its potential threat to GDP growth and other challenges such as Brexit being ahead, investors in the stock market may not generate significant returns in the short run.

Furthermore, there will always be stocks within the FTSE All-Share that produce disappointing financial performance. Kier and Thomas Cook are two recent examples of FTSE All-Share stocks that have delivered significant declines in their valuations, but they will not be the last companies to disappoint investors.

However, from a long-term perspective, shares continue to offer appealing returns. Emerging markets such as China and India are expected to grow rapidly, with them having the potential to catalyse the wider global growth outlook. And with the UK’s main index, the FTSE 100, appearing to offer a wide margin of safety, building a diverse range of stocks could lead to an improving financial outlook for investors.

As such, I think that now is not the time to give up on the stock market following the disappointment with Kier and Thomas Cook. In fact, it could be a good time to invest in high-quality companies that trade on low valuations.

The post Kier and Thomas Cook shares: why I think investors should persist with the stock market appeared first on The Twelfth Magpie.

More reading

• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Friday’s slump was triggered by news major Chinese conglomerate Fosun is in talks to make a £750m investment in Thomas Cook as part of a proposed refinancing of the group. This cash injection would make Fosun the controlling shareholder in the tour operator business and give it “a significant minority interest” in Thomas Cook Airlines.

This deal might seem like good news, but there’s a sting in the tail. In Friday’s update, management said this cash will be needed just to keep the group trading over winter and put spending plans in place for the future.

In addition to this cash, Thomas Cook will also need to agree a refinancing deal with its lenders. This is expected involve a debt-for-equity swap — cancelling some of the group’s debts in exchange for new shares in the business.

Even worse than expected

Chief executive Peter Fankhauser warns trading in the European travel market has become “progressively more challenging” in recent months. This has weakened the firm’s financial position and made it difficult to find a buyer for the airline. Profits for the second half of the year are also expected to be lower than last year.

This has left Fankhauser with no choice but to seek a debt-for-equity swap to reduce the company’s £1.7bn debt mountain to a more sustainable level. As I’ve commented, Thomas Cook’s bonds (debt) are trading at a big discount to their face value. This implies the group’s lenders don’t expect to get all their money back. That’s bad news for shareholders.

What this means for shareholders

With that £1.7bn of debt and a market-cap of just £125m, a deal to swap debt for new shares is likely to require a very large number of new shares to be issued. I’d expect them to outnumber existing shares by at least nine to one, giving the firm’s lenders a 90%+ stake in the business.

At the time of writing, Thomas Cook shares are changing hands for about 8p. In my opinion, this is far too high. I expect the shares to fall to 1p, perhaps even less. If shareholders don’t approve the refinancing deal, then I think the company is likely to go into administration. This would result in a total loss for shareholders.

What I’d do now

In my last piece on Thomas Cook in June, I warned the shares were “a reckless gamble” at best. I hope my warning managed to help a few readers avoid this trap.

In my view, today’s statement makes it clear the company is in financial distress and cannot continue operating without fresh cash from new investors and debt restructuring. This situation means existing shareholders will see very large losses.

For anyone who’s still holding the shares today, my view remains the only sensible thing to do is to sell. When details of the refinancing deal emerge, I expect the shares to fall much further than they have today.

The post The Thomas Cook share price just fell 40%. Don’t say I didn’t warn you appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.