Here I am after a long sunday, sitting in front of the computer writing a note on a stock which I feel is a compelling buy and a great value stock. Without a doubt, it is once again a stock that does not have too much liquidity. So I am not going to ask you to buy it like a contra stock. I spent the past 2 weeks looking at the company and only now do I have the time to write about it. That is why I am sacrificing my sleeping time to write. The fact that I suffer from constant insomnia does not undermine this effort of mine to get this note out there before the stock begins its big move.
Ok due to the short time I have and not wanting to eat too much into my sleeping time, I will cut a long story short. The stock in mind is QAF. Never heard of it? How about Gardenia? QAF is a leading multi-industry food company with core businesses in Food Manufacturing, Bakery, Primary Production, and Trading and Logistics. They have a growing and strategic network of operations and alliances across the Asia-Pacific region, including Singapore, Malaysia, the Philippines, China and Australia.
Why I like it? It has a strong network, valuation is cheap, business is easy to understand and last but not least, it is under-researched by analysts. The valuation is cheap because they are currently only trading at 4.9 times trailing p/e and with the economy coming back to normal, we can expect their profitability to improve further. For year 2009, they made $59 million and that was driven mainly by their primary production division Rivalea, which deals in farming of pork and it is the largest exporter of pork in Australia. The sum of parts for the company is definitely worth more than the current NAV because I believe that their intangible assets like their Farmland and Gardenia brands are household names for South-east Asian countries are undervalued.
The only division that is not doing well is their apple juice division, but this is a small division and it should not be a drag. I like this company because this is a company that is dealing with businesses that are very cash driven and inelastic demand. This is the exact description of a brick and mortar company. The cash flow is constantly strong, over the past two years, cash flow from operations have averaged S$90 million, which is really impressive.
Revenue for the company stands at a very nice 2.55 times of its market capitalization. I know, I will definitely go down into history as a brick and mortar investor, but honestly I do not know how to value stocks that are all about growth potential. Potential to me is just promise that has not been delivered. Which means it stands for nothing.
QAF has been there since my primary school days and years before that. I remember, I had a classmate whose father was sitting on the board of directors. For me, if the analysts are not looking at it, that is always a good sign. Do not miss out on this opportunity, because if you have missed my other calls then this is something that you should not miss.
As for my previous posts, one of my followers have said that he is holding 2 stocks that I recommended. Auric and United Overseas Australia, but I have to say that both have been slowly creeping up. Look at Lion Asiapac, it was not moving for some time after I made a call for it, but suddenly, it has shot up because of the special dividend. So it shows, good things come to those that wait. Be patient and the money is going to come.
Gotta sleep now, big week ahead. Big decisions to be made. Have a good week ahead and happy trading.
Best,
SVI
Sunday, April 11, 2010
Keeping Our Feet On The Ground. Market complacency is creeping in.
Once again I must apologise for missing another week of posts. After GP Batteries, do I have anything to recommend? Yes. Why haven't I? Because I feel that it may not be the best time to continue to add to your exposure. Do not get me wrong, all the stocks which I have recommended are still strong buys in terms of value, but if you are expecting me to tell you to continue adding exposure to your portfolio, I am not. I believe earnings season is starting soon and it will be a good point for us to monitor closely on whether the earnings can substantiate the current rally we are experiencing.
I have been wanting to collate all the recommendations I have made to keep track of their performance but have not found the time to do so. Do you want to do it for me?
Since my previous post on the bond market going through a bear phase, we have seen yields rising higher due to poor response to the treasury auctions over the past 2 weeks. I would really hate to be in the bond investors shoes right now, especially the conservative ones who only buys AAA or AA rated government debts. This is how I view bonds, they are a con job. Because inflation is always higher than reported and there is no such thing as a fixed return on a risky investment. If you are going to take risk, why the hell would you want to cap your upside?
Today, I am just going to discuss some of my views on the market and why I feel we should be a little cautious about things. How about lets list them one by one.
1) The micro-caps are running. Micro-caps are companies that have extremely small market capitalization and are often viewed as the companies that have little or no fundamentals. Companies like Top Global, Teledata etc doiminating the market actives list. This normally signals the market participants running out of ideas. Retail investors are also starting to be sucked into the market. That is often a bad sign.
2) Fear is rising. Especially sovereign risks are rising. If the treasury auctions do not do well, that would mean that investors are starting to worry about the credibility of the US government. If yields continue to rise, there is going to be a problem with the housing market, as pressure on interest rates to rise will curb any feeble recovery that was in stall. With US$84 billion on treasury auctions next week, its going to be an interesting ride for the market.
3) We are near key psychological barriers. The Dow at 11000, STI almost 3000, HSI almost 22000, Nikkei ah...Nikkei (2 year highs).
4) Every S Chip moving due to speculation on the possibility of dual listing plans. Let me put this straight, this dual listing theme is just a short term theme and not sustainable. People pushing up Cosco to this price ($1.51), take heed. The company still has a lot to prove in terms of earnings.
5) Threats of possible action by the US on the Chinese refusal to do anything about their undervalued yuan. Personally, I really doubt anything is going to happen but I think that it is something which we should be looking at.
6) Greece needing to refinance US$10 billion worth of debt next five weeks, starting on tuesday. Plenty of eyes will be on the auction to see if Greece will default causing a frenzy of fear on the rest of the PIGS countries. As I said before, I do not view this a big thing, but when markets have been doing so well, people will take the smallest excuse to take profits.
I am not trying to say that the market is going to start retracing immediately. Markets always tend to behave irrationally and overshoot on both the upside and downside. So this rally will continue for as long as the market participants feel exuberant, but the reason to why I am writing this short post is to remind all, including myself to not get caught up with too much exuberance and to keep my feet planted on the ground.
The Singapore market is clearly on the road to recovery and we are still more than 20% lower from its highs in 2007. Do I think we will fully recover? I do. Do I think there will be bumps on the way? Of course. Once someone told me, that life is all about the bumps that makes things interesting. I think thats absolutely bullshit because there is really no meaning to life.
But in stocks, I think that it is very true. We need points of consolidation and gradual moves higher rather than spikes, this is to keep us realistic about our expectations. Remember, if they do not pull back, it will not give us more chances to buy more at a lower price, thats how I see it. Ok till the next post.
Best,
SVI
I have been wanting to collate all the recommendations I have made to keep track of their performance but have not found the time to do so. Do you want to do it for me?
Since my previous post on the bond market going through a bear phase, we have seen yields rising higher due to poor response to the treasury auctions over the past 2 weeks. I would really hate to be in the bond investors shoes right now, especially the conservative ones who only buys AAA or AA rated government debts. This is how I view bonds, they are a con job. Because inflation is always higher than reported and there is no such thing as a fixed return on a risky investment. If you are going to take risk, why the hell would you want to cap your upside?
Today, I am just going to discuss some of my views on the market and why I feel we should be a little cautious about things. How about lets list them one by one.
1) The micro-caps are running. Micro-caps are companies that have extremely small market capitalization and are often viewed as the companies that have little or no fundamentals. Companies like Top Global, Teledata etc doiminating the market actives list. This normally signals the market participants running out of ideas. Retail investors are also starting to be sucked into the market. That is often a bad sign.
2) Fear is rising. Especially sovereign risks are rising. If the treasury auctions do not do well, that would mean that investors are starting to worry about the credibility of the US government. If yields continue to rise, there is going to be a problem with the housing market, as pressure on interest rates to rise will curb any feeble recovery that was in stall. With US$84 billion on treasury auctions next week, its going to be an interesting ride for the market.
3) We are near key psychological barriers. The Dow at 11000, STI almost 3000, HSI almost 22000, Nikkei ah...Nikkei (2 year highs).
4) Every S Chip moving due to speculation on the possibility of dual listing plans. Let me put this straight, this dual listing theme is just a short term theme and not sustainable. People pushing up Cosco to this price ($1.51), take heed. The company still has a lot to prove in terms of earnings.
5) Threats of possible action by the US on the Chinese refusal to do anything about their undervalued yuan. Personally, I really doubt anything is going to happen but I think that it is something which we should be looking at.
6) Greece needing to refinance US$10 billion worth of debt next five weeks, starting on tuesday. Plenty of eyes will be on the auction to see if Greece will default causing a frenzy of fear on the rest of the PIGS countries. As I said before, I do not view this a big thing, but when markets have been doing so well, people will take the smallest excuse to take profits.
I am not trying to say that the market is going to start retracing immediately. Markets always tend to behave irrationally and overshoot on both the upside and downside. So this rally will continue for as long as the market participants feel exuberant, but the reason to why I am writing this short post is to remind all, including myself to not get caught up with too much exuberance and to keep my feet planted on the ground.
The Singapore market is clearly on the road to recovery and we are still more than 20% lower from its highs in 2007. Do I think we will fully recover? I do. Do I think there will be bumps on the way? Of course. Once someone told me, that life is all about the bumps that makes things interesting. I think thats absolutely bullshit because there is really no meaning to life.
But in stocks, I think that it is very true. We need points of consolidation and gradual moves higher rather than spikes, this is to keep us realistic about our expectations. Remember, if they do not pull back, it will not give us more chances to buy more at a lower price, thats how I see it. Ok till the next post.
Best,
SVI
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