Building Up A Basket of Defensive Stocks

Building Up

A Basket of

Defensive Stocks

From time to time, there would be some friends / followers keen to know  my next target stock to buy. I am actually used to such question that I have decided to come up with a standard reply: The moment I BOUGHT any stock, I will post in  our WhatsApp Group so that members are informed and will make their own decisions.

Although I share with my stocks purchase, I sincerely believe not all my stocks purchased will be followed by all. Meaning NOT all will simply go and buy. Many of my followers / friends are seasoned investors, too and they  do have knowledge and good judgement on stocks too.

A few of them are very well versed with certain stocks which I am not. But nevertheless, the WhatsApp Group is a very good platform for amongst us to share our views and at times certain jokes as well.

Anyway, where is the stock market direction heading this year? Which theme are investors looking at? Stocks that are set to gain from the strengthening of the Ringgit? What about plantations stocks? One kind famous blogger Calvin has been fiercely promoting plantation stocks in view of less production this year due to the El Nino effect. At the moment, his call seems to be on the right track as futures prices are trading higher this year for plantation.

What about those related to oil and gas? Oil seems to be hovering around USD 40 plus minus range? Some days you will read oil prices moving up and another day there will be a report of something happening and oil prices move down.

If an investor is to take all those above facts into consideration before investing, I think it will be very difficult because situations can change very fast. Though the USD appeared to be not so strong vs the Ringgit, but  I bet many are not willing to bet that the Ringgit will trade back to its RM3.30 levels. The best it can trade is RM3.80 levels, that is also my personal opinion.

Although I do understand all those facts will have an effect on stocks, I do not want it to seriously effect my stocks selection. I will take a different approach that is not so mind-blogging.

I will use the dollar-cost averaging methods this year. I will try to buy a certain stock (which hit my target price to purchase) every one month plus or so.

In short, I intend to buy a basket of quality stocks (in my opinion only) that if one holds over a period of between now and three years, one has a better chance to reap its rewards when the share price moves up eventually due to consistent improving profits.

Some of my criterias are :  the companies are paying good dividends regularly, having good cash-flow in their business, are cash-rich and focussing on their main business rather than trying to diversify into totally different kind of other business they do not know or not very familiar with.

Readers would have noticed that I have been on a buying spree since the end of 2015. I had bought NTPM, CCB, Chin Well and the latest BP Plastics, but periodically so that as to average out.

At the moment, NTPM is positive, CCB and Chin Well are more or less same, while BP Plastics is on the negative side. Am I worried now that one of my stock selections is in the negative area?

No, I am not perturbed at all about the share price moving down after my purchase. I don't really see the short term price movement as bothering at all. What I am really worried is the quarterly results.

Results are all that matter for any stocks. A good string of sequential quarterly results can move a stock price up by some percentage. But it does not guarantee it will not come down should overall market sentiment takes a severe beating due to certain crisis.

Still, a better quarterly result is so much better than a poorer quarterly result. Even then, as I experienced recently three of my stocks were actually traded down at certain stage after announcing good quarterly results. (You can refer to my previous blog : When good results are still not good enough).

I still believe if one takes a longer term horizontal view of three years holding on to such stocks (which has the criteria as mentioned), one will reap rewards.

Two such stocks which fit into my criterias bought and were sold off after a few years later for good bumper profits were Hup Seng Industries Berhad and YSP Sah. These are two classic examples.

I will be looking to buy another stock in due time. But the stock which is in my radar must more or less hit my target price. But it is not so appropriate if I were to tell readers the list of my target stocks and then I did not purchase them later if they fall into my target price.

This also helps to explain to my reader CK who asked me for which stocks I am aiming to buy. So to you, CK, I hope my views and comment shared will help explain more precisely why I did not wish to name any stocks I have not yet bought but are in my radar list.

I have always believed actions speak louder than words.

[Also from now onwards, I have decided not to post any buying and selling contract note of my latest shares. I believed it is not really necessary because if I buy, then I really buy because I can't cheat everyone by saying I buy when I actually didn't buy or vice-versa). The truth can always be unearthed in the end). As they say, you can cheat or tell lie once and get away, but eventually you will get caught if you keep doing so].

  

When good results are still not good enough

When good results

are still not good enough

The stock market continues to intrigue me more and more these days. Although I have been trading since 1993, I have not been able to understand very well the intriguing movements of the market from time to time.

The latest several incidents are fine examples. It is the nature of investors to be looking forward when your stock is going to announce a quarterly result. You pray it will be a good one so that more investors will be more keen to buy the shares and hence reduce the supply in the market. In the process, the more demand vs less supply situation will help to push up the price.

Well, that is what I thought so until three of my stocks posted good quarterly results, but the share price either shot up temporarily and then came down worse later or tanked in just like that the very next  trading day.

The first one is Tek Seng Holdings Berhad. Prior to announcing its 4th Qtr  2015 results on Feb 15, 2016, its share price touched as high as RM1.30 on Jan 11. But on Feb 15, it announced a sterling results of 4.02 eps for 4th Qtr 2015. It is by far the highest eps per quarter since the last decade.

In fact, its total culminated nine months earnings of 2015 is just 4.4 sen when compared to its 4th Qtr earning of 4.02 sen alone. Is the solar business finally bringing in the revenue and hence rising profits now?

But the next trading day saw Tek Seng closing at RM1.19, up just 7 sen. Why didn't it surpass its peak price of RM1.30 done on Jan 11? Shouldn't it be at least traded near that peak price of RM1.30?

Worse, if you care to look at today's closing price, April 14, it is just RM1.10 which is below the post 4th Qtr result day.

The second one is Cycle and Carriage Bintang Berhad. Prior to announcing its 4th Qtr 2015 results, its share price touched a high of RM3.93 on Jan 11, 2015. When it announced its 4th Qtr results on Feb 22 an 10.12 eps (thus bringing a total 51.74 sen for 2015 compared to just 10.25 sen for 2014), its share price closed at RM3.76.

What happened the next trading days scared off investors. Its share price dropped to RM3.49, a drop of 27 sen and it was amongst the top ten losers of the day! Perhaps most investors were very disappointed with the paltry dividend of 5 sen only.

Investors must have anticipated a bumper special dividend of at least 50 sen this time. The last time CCB paid a special dividend was in 2006 and the amount was as much as RM2.03. So perhaps after a ten years lapse of special dividend, investors were fervently betting of a special dividend this time.

Sadly it did not materialize and this could be the reason the share price dropped so much. At the close of today, April 14, the price is RM3.59 which is still down by as much as 17 sen compared to the price of RM3.76 on Feb 22.

Finally NTPM Holdings Berhad. In case you are not sure what NTPM stands for, it is Nibong Tebal Paper Mills. Actually, I learned it from some reports too.

On Mar 25, NTPM reported an excellent 3rd Qtr 2016 results of 1.6 eps, which is higher than 1st Qtr & 2nd Qtr's 1.2 eps and 1.5 eps respectively. It closed at RM1.06 although it touched a high of RM1.09 on Mar 23.

Instead of surging higher the next trading day after the good announcement results, it dropped as much as 6 sen instead and closed at RM1. At the time of writing on April 13, NTPM's share price is still hovering below RM1 and last traded at 97 sen.

Seriously how many of us noticed or experienced this type of share price falling down situation despite announcing a better result? I bet most of us won't feel it until it happens to our very own shares.

What can we conclude from these three disappointing situation?

For one, investors should not put too much hope each time a better Qtr result is announced. There is no guarantee the share price will react positively after the announcement. If it moves up positively after the announcement, it might not stay there for long once the euphoria is down.

But at least a better result announcement is still better than a poorer result announcement. Isn't it?

Ha ha, that is the intriguing aspect of investors' sentiment towards a share each time a Quarterly result is announced. It is one I still find it hard to grasp with despite all my years of experience.

CK must be one of my favourites followers/readers. For the second consecutive time, ck has been emailing me with a couple of questions.

On April, 1, ck asked : which export-oriented stocks are you looking to buy?

Good question. There are a few, but it has not fallen to the price target I have set in. I also have a target price to buy for each stock. But what if three different stocks of my choice hit the target price at almost the same day? Would I be buying all?

No, the answer is a firm NO. I would buy one and still patiently wait for another time (depending on whether I choose to make a purchase every one month or so).

In this way, I believed I have applied the average way of investing consistently periodically. I strongly believe this is a good strategy provided one is willing to hold on and buying for mid to long term.

Anyway, I have decided to make another purchase and the stock is ....

Buying 4,000 shares of

BP Plastics Holdings Bhd

at RM1.57 on April 14, 2016.

I shall elaborate more about this company in my coming blog.

 

Eyeing more export-oriented stocks

Eyeing more

export-oriented

stocks

Once the flavour boys of last year's market rally, export-oriented stocks since late January this year has been bashed again and again for weeks after weeks due to one simple reason : the strengthening ringgit vs USD.

The ringgit has appreciated to the RM4 level from RM4.40 plus range this year. As such, oriented-export stocks are perceived to be affected as their  main bulk  of profits are denominated in USD.

Investors are bracing for lower profits this year from all these export-oriented stocks and have been selling very aggressively regardless of whether the companies concerned are of good quality ones.

Several good fundamental companies have seen their share price peaked as early as January only to plummet down by as much as 30%. An example is Supermax Corporation Berhad which peaked at RM3.56 on Jan 7 and plunged down to the current price of RM2.55 on Mar 30. It is a plunge of as much as 28 %. I was lucky enough to sell off at RM3.52 in January during near its peak.

Another of my favourites Focus Lumber Berhad has seen its share price peaked at its all time high on Jan 11 at RM3.09. In fact, I was on the screen witnessing the buy and sell bids on that day. I just did not do anything and I believed you know what I am talking about. It is a decision I am living to regret with it today as its share price has been hammered down like nobody's business. It closed at RM2.12 on Mar 30, down by as much as

32 %.

As I have shared before, sometimes not taking big profits can be a huge mistake when market sentiment changes. At times taking profits too early can also be not such a wise one as one sees its share price continues to rise further.

Apart from selling Supermax, I did sell off five "unlisted shares" during the month of January. All those were bought years back and resulted in good profits. One reason I sold was to position myself with cash to pick those badly beaten down export-oriented stocks especially those cash-rich, paying good dividends and getting on seriously with their business and managed by competent management.

One such stock is Chin Well Holdings Berhad which I managed to purchase at RM1.69 on Mar or Feb 15. Note that Chin Well's share price reached a peak on Jan 7 at RM2.34. My purchase price of RM1.69 means it has dropped by as much as 27%. Furthermore, its 52-week low is at RM1.30 which means my purchase price is just 39 sen above it and 65 sen from its peak price. I would call it some margin of safety though one can never be sure of what can happen to the stock's future price.

The Ringgit vs USD issue has a lot to do with the investors' perception on export-oriented stocks. Will the Ringgit claws back its way to the RM3.60-RM3.80 range in the next one year or two or will the Ringgit remains traded at the range of RM4 plus minus? I do not have any idea although according to RAM Ratings, oils are likely to trade at average of USD40 in 2016 and USD45 in 2017.

If this is the case, then the Ringgit is likely to remain subdued at RM4.00 plus range for the next two years. Will then export-oriented stocks capitalize on this for the next two years?

One must note that investors should not put too much emphasis on the Ringgit vs USD factors when it comes to investing in export-oriented stocks. Rather I seriously think we should look into their business and fundamental levels.

Many export-oriented stocks had a great year in 2015. Several had recorded big bumper profits and their cash hoards have increased tremendously. Several have become richer than before and hence in a stronger position than ever before.

It is of my very personal view that those heavily beaten down export-oriented stocks are worth to invest especially those paying good dividends ones.

Chin Well won't be the first and last of export-oriented stock for me. I have eyes on several ones. But I prefer to use a staggered-buying basis meaning I will be buying from time to time to average out my investment.

A comment from ck on March 19, 2016

What do you think of IQ Bhd and Prolexus ?

Reply

Unfortunately, I do not know much or what to think of IQ Berhad or Prolexus stocks.

There are over 1000 numbers of stocks and I don't think it is possible for anyone to know well such a high numbers of companies. I will only study certain particular stocks once I am interested. Otherwise I will just skip even any reports of any companies.

Perhaps there are some others bloggers familiar with these two companies who might be keen to share.