NAHL Group (London: NAH), Britain’s go-to marketing cooperative for lawyers, was blindsided by a recent government budget statement, which caused shares to drop more than 20% in one day.
So today I want us to put in some protection.
The day before Thanksgiving, U.K. Chancellor George Osborne announced the government’s spending review during his Autumn Statement. More specifically, the chancellor proposed restrictions on whiplash claims, and announced plans to cut down on legal costs by sending personal injury claims of up to Â£5,000 (US$7,525) to small claims court.
On the news, NAHL Group’s stock took a hit as investors turned skittish. But the company immediately responded with its own statement, saying that although these plans create some uncertainty, it remains confident that it’ll adapt to any regulatory changes â€” just as it’s done several times in the past.
In fact, two of its recent acquisitions, Bush & Company and Fitzalan Partners, would not be impacted by these changes at all, so NAHL is already somewhat diversified, giving it a cushion against the proposed reforms.
Remember, NAHL is a leader in the personal-injury space, and it will look to gobble up market share if government regulations start causing its competitors to go out of business, leaving NAHL in a stronger position.
So I don’t want us to sell our position just yet. I believe investors are overreacting as they usually do when news like this breaks, shooting first and asking questions later. Once the panic dies down, they’ll realize that NAHL is a solid company that will likely weather whatever comes its way.
But if NAHL can’t maneuver its way through those regulatory changes like it believes it can, I want to be prepared. So today we’re going to place a stop-loss order to protect us:
Action to take: Set a stop-loss order on NAHL Group (London: NAH) at Â£2.08 (US$3.13). At last glance, the stock was trading at Â£2.11 (US$3.18).
This stop-loss limits our loss to 30% â€” giving our position a bit more leash to see if NAHL can truly operate at a high level with these new government regulations.
Until next time, stay Sovereignâ€¦
Jeff D. Opdyke
Editor, Sovereign Investor