Indo Agri

Palm oil stocks seem to be a laggard in the bull run of late, they fell on Italian election news and did not make a quick recovery. 

Indofood Agri:

Indo agri continued on its downtrend and at current price of S$1.19, it is approaching its support at S$1.14. At the start of the year they had expanded into the Brazil sugar business which isn't exactly a hot industry right now.

Some sugar facts:

• Prices are on a lower end which means revenue will be lower. 
• Since prices are low, acquiring sugar related assets are at a lower premium.
• A foray into sugar generally takes a few years to mature and contribute to the margins.
• Sugar prices are volatile, largely affected by the weather.

From my point of view, for a stock that is largely family controlled, it is rather active in its business expansion. This means that the family is interested in growing their wealth and not just sit on it which gives it room for further long term upside. 

On Palm oil, it is currently having an oversupply with lower margins. Some analyst seem to think the lower margins have been priced in. Well, my take is that it is partially priced in. Perhaps the larger institutional investors have trimmed their holdings in palm oil, but a fair number of retail investors might still be holding on with the high prices on 2011 in their minds and hoping for a recovery. The point here is that, while i believe it will recover in the long run, margins will continue to be low throughout this year and these retail investors might not have an investment horizon long enough to wait out the fall in margins, such that upon release of results for each quarter this year, they sell the stocks. 

In my opinion, palm oil and sugar are good fundamentals, and prices are at relative low now. Entering these stocks now with long investment horizons of say greater than 3 years will probably yield profits. In the short term however, prices will continue to erode with the gradual fall in margins. 

Next support seems to be at S$1.14, but those looking for long term buys should consider the approaching 3 year low of S$1.14. To end off, on a cautionary note, this stock registered a low around of S$0.45 in Jan 08.