It’s been a challenging first half of the year for investors with so many stocks falling in value. Our annual stock pick selection features a few bright spots, yet the portfolio is still in negative territory. We can only hope for a much better second-half, though the outlook is far from encouraging.

Since we published the portfolio on 23 December 2021, we’ve seen a 14.5% loss versus a 3.8% decline from the FTSE All-Share index  and a 10.5% drop in the sterling-denominated version of the MSCI World index.

CONSUMER SPENDING FEARS

Casual dining group Loungers (LGRS:AIM) and dog food-to-vet services provider Pets at Home (PETS) have been sold down by investors who fear the cost-of-living crisis will see consumers cut back on spending to cover their household bills. However, that doesn’t tally with the messages from both businesses.

In a 26 April update, Loungers said trading had bounced back strongly from a dip around Christmas when the country was struggling with a new wave of Covid. We’ll get a better picture of recent trading when Loungers reports full-year results on 13 July.

On 25 May Pets at Home delivered a strong performance for the year to March with revenues and earnings ahead of estimates, a strengthened balance sheet and a hike in the dividend.

The company also talked about pet care being resilient in both good and bad economic conditions and said it expected earnings for its new financial year to be in line with analyst expectations. After all, pets need feeding regardless of the economic environment and most pet owners view animal healthcare as non-discretionary spend.

Nonetheless, the market remains nervous, and it didn’t help that broker RBC downgraded its rating on the stock to ‘underperform’ on 4 July, causing another sell-off in the shares. Pets at Home’s next trading update comes out on 5 August.

Both Loungers and Pets at Home are financially healthy and should benefit as weaker players exit their respective markets, but investors are following a top-down playbook for now.

With expectations of more interest rate rises to come and now talk of a recession to follow, sentiment in consumer discretionary stocks is likely to stay poor and there’s little we can do for the time being.

The sell-off in sustainable wood company Accsys Technologies (AXS:AIM) and French electrical components giant Schneider Electric (SU:EPA) is less easy to explain.

Accsys is growing its revenues at a 20% a year thanks to a continued excess of demand versus supply and price hikes.

Despite temporary lockdowns in China which may have affected some of its plants, Schneider Electric is growing its sales in energy efficiency and industrial automation by 10% organically.

The company is still a world-class business, while saving energy and fixing supply chain bottlenecks are top of most firms’ agendas.

NO RELIEF FROM OVERSEAS

Our two foreign picks, US internet search and advertising firm Alphabet (GOOG:NASDAQ) and Swiss pharmaceutical giant Roche (ROG:SWX), have both seen share price declines since we said to buy.

Alphabet delivered in-line revenues and earnings last quarter and announced a $70 billion buyback, but tech stocks remain out of fashion with investors.

Meanwhile, the news flow on Roche had been uniformly positive until the firm recently suffered various setbacks. In May, trial data showed its cancer drug failed to slow the disease in patients with lung cancer, and in June it revealed its Alzheimer’s drug failed to slow or prevent cognitive decline.

BEST OF THE BUNCH

Compared with our other discretionary spending picks, airline Jet2 (JET2:AIM) has weathered the first-half storm relatively well.

The business recovered quickly from the Omicron variant and the reimposition of travel restrictions at the start of the year, with passenger numbers almost back to seasonal norms in March.

Summer bookings are nearly 20% ahead of pre-pandemic levels with package holidays growing in popularity, which is good for margins.

Elsewhere, shares in gas and infrastructure operator IOG (IOG:AIM) are up nearly 4% since we said to buy last December following a tumultuous half-year for gas prices amid the invasion of Ukraine.

On 23 May, FinnCap analyst Jonathan Wright cut his 2022 earnings forecasts after some teething problems with IOG’s Saturn Banks development and a record discount for UK versus European gas prices. However, he added: ‘(We) still see significant upside potential from IOG’s exposure to structurally higher long-term gas prices.’

In contrast, it has been plain sailing so far for our only financial pick, London Stock Exchange (LSEG), which is up 12.8% since we said to buy last December.

The firm continues to make strong financial and operational progress with total income growing by mid-single digits in the first quarter helped by the capital markets division.

The star performer in our portfolio has been food and beverage solutions manufacturer Tate & Lyle (TATE) which has gained 17.3% this year.

Demand for the firm’s ingredients has been robust and its investment in innovation is paying off with a spike in new product revenues.

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