Market Timing

Commodity stocks Wilmar and NOL seem to be getting battered over the last 2 days.

Bloomberg came up with an article about palm oil prices which may give some insight into the palm oil profitability this year:

Bloomberg Palm oil

I'm glad i thought twice about buying more stocks a couple of weeks ago.

Wilmar

A mini head and shower has developed with Wilmar closing at S$3.5 today. A break below this level might see price fall to the next critical support at S$3.36. If it breaks this level then Wilmar is going downtrend again.

I will monitor over the next few days to see how it goes.

NOL

OCBC had given a hold call despite disappointing results, but mentioned that they are confident about the long term prospects, well me too. For now, there seems to be some support at the 100 day MA, support is at S$1.15.

I will monitor over the next few days to see how it goes.

I guess what i learn from this is market timing. While i may have had the fortune to spot the bottom in November, i need to be able to better identify exits. One key indicator is when analyst start to write really bullish reports and i start to question the sustainability. 

Note to myself- as i'm mostly invested in commodity stocks, these stocks move really quickly and with more impact than the general market. A proper exit strategy must be in placed with the discipline to follow through.

After we missed the peak it always feels like we just wanna hang on a little longer for more upside only to realise later, we missed it.

Bullish Trap

I have been very tempted by market news lately. It seems almost all news these days are of analyst making bullish calls, expecting a great year ahead and reporting money moving into the stock market. On the other hand, the market is due for a technical correction.

The question here is that will investor irrationality keep pushing up the stock market? I believe that most investors have already entered the market over the last 3 months and anyone entering the market now is just the few that has missed the boat and want to catch onto the last part. 

Caught up in the greed and exuberance of the market, i made some target prices for several stocks on Monday, on hindsight, i think i will put them on hold and wait over the next couple of weeks for more earning news. I have this feeling that the market will correct in 2 months and bottom out again in the May - June period. If i turn out wrong, at least i know i am just being rational. 

Just looking at the STI chart over the past 10 years has revealed that the index takes a longer time to accumulate (sometimes even years) than the time taken for a reversal. Better not to get sucked into the idea of potential gains at the expense of good value, after all, what really affects your bottom line is not small expenses like our day to day food, but poor investment decisions that wipe out up to 10 - 20% of your net worth in a matter of days. 

Portfolio restructure

Seems like the market is undergoing short term consolidation. Immediate support is at 20day MA with next support at 50 day MA. With all the optimism going on, i feel this short downtrend is only technical and will not fall below the 50 day. 

Everyone thinks the market bull is here to stay for 2013 and even continue to 2014, but i feel we should be cautiously and buying only into value.

Alot of optimism have been priced in lately. So i suspect that even with all the liquidity going around, the market uptrend for this year will not be stellar.

 Some target stocks i have in mind:

IndoAgri:

Technically seems to be converging, temporary support at S$1.28. Value buy at S$1.25.

Q3 financials revealed that balance sheet and income statement is okay. Don't think there will be much changes when results are released on 27th feb. Majority owner increased stake by 2% to 71%. Firm is owned largely by Salim family. Price should not drastically fall without any action from the family. Dividend is negligible though.

Noble:

I have been watching this stock over the past few months and noticed it finally went down. My inital target a few weeks back put target entry price at S$1.18. Support and current price seems to be established at 50 day MA (S$1.175). FY12 saw noble trading between the range of S$1.05 to S$1.355. 3 resistance levels to FY12 upside of S$1.355 with next support at S$1.1 and strong support at S$1.05. Putting this in % terms, from current price, potential max upside =  15.3%, potential downside = 11.9%. Entering now seems okay to me. Lowest analyst forecast stands at S$0.99.

Financials are out 28th Feb, 14 May, 8 Aug, 12 Nov. Overall FY12 Net income will probably be slightly better than FY11. High debt utilisation of approx USD4.5bn against market cap of 7.72bn (69.9%). Firm seems to be gearing up over the years. High intangible assets of USD820m. FY11 financials revealed that 22.6% of revenue was from agriculture (cotton, coffee, cocoa, soybean, oilseed, grain, sugar) and wheat, 63.8% from energy (coal) and 13.5% from metals, minerals and ores (iron ore). Firm does not produce the commodities, it is a supply chain manager. Let's do a little research given that 63.8% of its revenue is from Coal. Noble exports coal to China and the risks involve in this is that the Government is going in the renewable energy direction. It has also increased its coal production capacity (despite some accidents reported that shut down mines). I feel in the next 2-3 years demand should still be there, so that's okay. Smallish dividend yield of 1.74%.

NOL

Entered at 1.12. Current price seems to have consolidated at S$1.24. I remain bullish on its long term outlook. Many think that shipping is still facing an oversupply, however, i believed it has already been priced (NOL lowest point S$1.0). Firm is still not making profits but may just squeeze out a small turn around in FY13. Has exposure to China's recovery as it ploughs on the trans pacific route between USA and China. USA economy seems to be picking up lately too. Might pick up more of the stock at this price.

Wilmar
Entered at S$3.16, guess i missed the high of S$3.9. Support level of S$3.59 was tested on Friday. I suspect it will consolidate around this level given the U shaped recovery it exhibited earlier. Next support at S$3.4 (5.5% downside), next resistance at S$3.76 (4.7% upside). Smallish dividend yield of 1.7%.

I feel this stock has long run potential as well. Value is alright but given the price of S$3.59 i think i'll invest in the other 3 stocks for diversification benefits. The market might fall in the short run, but i believe over the next 3 to 12 months the stocks will be higher than the current price.

Raffles Global financial analysis

Everyone knows that the education business has alot of potential given that unlike 30 years or so ago, it is becoming a thing of common place. Moreover, as developing economies grow, more and more people will seek education. I was always on the look out for education stocks and another blog i read highlighted that it might be on the uptrend now so i decided to take a closer look at it.

Raffles global has been on the downtrend over the past 2 year and from a technical perspective has broken out of its descent.

Immediate support is at S$0.355 and resistance is at S$0.39. It seems to have formed higher lows, higher highs and also broken out of its descending trend. On a pessimistic side it may trade like in the range of September to November 2012 before breaking support, but on the flip side, with current market optimism, it may trend within the range or continue on its uptrend. Irregardless, i will monitor over the next week.

A closer analysis into the volume revealed that stock volume has been high since Sept 12 2012. This was when billionare Oei Hong Leong bought 10 million shares to increase his stakeholding to 4.86%. This had stimulated market interest in the stock, and thereafter with general market conditions improving, volume was maintained at a relatively higher level of above 1 million. Noted that that stock rose again from 0.31 to 0.34 in late December when the same billionare Oei Hong Leong bought the stocks. What's his deal in this, is he a speculator or an investor? The points at where he bought were generally low, a large sell off from him could trigger an equal fall. Dividend of this stock at current price stands at 2.2%.

I decided to check into the fundamentals to assess the feasibility of investing in this stock given i missed the recent bottoming out. After all, there's still some risk given that if market optimism stops, money from penny stocks might be pulled out.

FY 30 June 2012 financials were released on 24th August 2012.  Noted that the stock went on a downtrend from 0.33 to 0.275 (16.7%) over the August 24 - September 11 period after the report was released. In contrast the market moved downwards 1.37% during this same period, indicating that in the absence of large market movement, this stock will be affected by company financials.

FYE 30 June 2012 FSA highlights:

• Other operating income increased 2396% from S$5.7m to S$126m . Due largely to S$90.1m of government grants
• This is in contrast to actual Revenue which decreased  10% from S$146m to S$131m.
• Operating expenses increased from S$67.9m to S$120.1m, due to provisions for land restructuring, this is compensated by government grant of S$90.1m. There is no actual gain given that the grants were meant to offset costs.
• NPAT decreased  to S$64.7m from S$19.28m despite large increase in core operating income.
• Noted that NPAT would have been worse if not for the currency gain of S$18.5m (FY11: S$32.0m). Poor FX control?
• 
  

Notes:

Lower enrolments in PRC’s Private Education System (“PES”) institutions due to:

a. the continuing decline in university-going students as a result of demographic changes because of the one-child policy; 

b. increase in the overall acceptance rate into National Education System (“NES”) universities and institutions; and

c. increasing number of students choosing to pursue higher education overseas.

Seems like the private education business in china doesn't seem to have alot of prospects. 60.8% of their business is in North Asia.

Group strategy is to expand in the growing ASEAN region and implement new strategies for the PRC region. Didn't really say what these strategies are. Makes you wonder why they would enter the PRC market in the first place given its demographics. 

This stock was worth S$9 in 2008 when financials were good. The financials since then hasn't deterioration proportionately meaning that the stock could have lost its original optimism priced in but could be reflect some value given its cheap price now. Given such a high price previously, I suspect if the market continues on an uptrend, this stock will rise despite it not being fundamentally great.

The question here to ask is that can this stock make a fundamental turn around? Such that you hold it for a few years. If not, is a trading buy, where you hold it for a few months more suitable? 

This stock in reality is still on a fundamental downtrend and will fall again when the next financials are release. Given today's relatively low price of S$0.38 and dividend yield of 2.2%, i might cautiously enter this stock  and monitor firm related news. It might take some averaging down and long run holding, but i believe given that it is in the business of education, there is some long run potential the stock might go up to high levels again in future, that is if management is success in turning around this firm over the next few years.