Wednesday, September 30, 2009
Synear - Trend Reversal!
A Dark Cloud Cover Pattern (1st level reversal pattern) was formed on the uptrend channel. The stock may retrace back to $0.35 where this is the support line of the channel and 20D MA. If it breaks this support level, next support is $0.33. The uptrend channel probably ends when it reaches the $0.33 level.
StarHub - Fundamental & Intrinsic Value
Base on Q2, 2009 financial report:
PE Model
- PE = 11.9
- Dividend Yield = 8.3%
- NAV = $0.0723
- Net Earning = 15.1% (14.6% in 2008)
- Current Ratio = 0.5 (Telecommunication industry characteristic, SingTel current ratio is 0.7, M1 is 0.48)
- ROA = 18.7% (Base on 2008 Full Year)
- ROE = 288% (base on 2008 Full Year)
- Cash Flow = S$237.2 Million
- 3 years historal high = $3.2
- Current Price = $2.17 (only 68% of 3 years high)
PE Model
- Fair value PE = 15, intrinsic value= $2.73 (base on EPS $0.18186)
- PEG = 1.03
- Growth Rate = 15.26% (capped at 15%, from 2004A to 2008A)
- Discount Rate = 5%
- Number of Shares = 1,711.73 million
- 2008A Net Operating Cash Flow = S$597.5 million, intrinsic value = $5.86
- Growth Rate = 11.6% (From 2005A to 2008A)
- Discount Rate = 5%
- 2008A EPS = $0.18186
- Intrinsic Value = $2.58
Tuesday, September 29, 2009
SMRT - A defensive stock with good dividend
Stock price (today closed) = $1.68
PE = 15.6
Dividend = 4.6%
SMRT is below its 20D and 50D MA and on the down trend. Next immediate supports are at $1.629 & $1.585. My target entry level is below $1.60 for long term investment to collect dividend.
PE = 15.6
Dividend = 4.6%
SMRT is below its 20D and 50D MA and on the down trend. Next immediate supports are at $1.629 & $1.585. My target entry level is below $1.60 for long term investment to collect dividend.
StarHub - A defensive stock with good dividend
Current Price (today closed) = $2.18
PE = 12
Dividend Yield = 8.3%
I plan to buy this stock as long term investment to collect dividend. It is much better than putting money in the bank.
The stock price may go down trend if 20D and 50D MA support are broken. I plan to start accumulating at $2.10 as my first entry level. $2.07 is a very strong support level as it is a 200D MA support and 50% of the Fibonacci retracement level.
PE = 12
Dividend Yield = 8.3%
I plan to buy this stock as long term investment to collect dividend. It is much better than putting money in the bank.
The stock price may go down trend if 20D and 50D MA support are broken. I plan to start accumulating at $2.10 as my first entry level. $2.07 is a very strong support level as it is a 200D MA support and 50% of the Fibonacci retracement level.
China Fishery - new support and resistance levels
I'd redrawn the Fibonacci support & resistance levels after China Fishery broke the $1.422 resistance. Currently the stock price is testing $1.458 resistance and the volume is picking up. If this resistance is broken, China Fisher has chance to go up to $1.568 and eventually $1.616 (161.8% Fibonacci).
Monday, September 28, 2009
DryShips (DRYS) - Down Trend soon?
DRYS may start the down trend if it breaks the 20D & 50D MA. Next strong support at $6.045. The stock price looks very attractive base on the historical high of $131 in Oct 2007. The upside potential is extremely huge if the company does not go burst and the economy recovers. High Risk Hign Gain!
S&P500 - Testing its 20D MA
Historically September is the most bearish month of the year. However, the big correction still has not started yet. I've bought some PUT option on SPY (S&P500 Index ETF) few weeks ago base on the assumption that Sept will have a big correction. I think I've made a mistake buying options without looking at the chart & confirming with the technical indicators.
Last Friday S&P500 showed some weakness and the stock price was testing its 20D MA. Let's see this week whether S&P500 can stay above the 20D MA and 1009 (this is a very strong resistance base on 61.8% Fibonacci retracement level from Nov 2008 high).
Last Friday S&P500 showed some weakness and the stock price was testing its 20D MA. Let's see this week whether S&P500 can stay above the 20D MA and 1009 (this is a very strong resistance base on 61.8% Fibonacci retracement level from Nov 2008 high).
Sunday, September 27, 2009
How do I time my entry point?
After identifying a good stock and calculate the intrinsic value, the next important step is to develop a trading plan or investment plan of when to buy and when to sell. The first thing before I enter the position is to look for excuse for not to buy because it is easier to identify the not to buy signals.
When Not to Buy?
When the stock in on the down trend. I check whether the stock price is below 20D, 50D and 200D MA line. I do not want to buy a stock which may go lower and lower. I also use other Technical Indicators (MA, MACD, Parabolic Stop and Reversal, Bollinger Band, RSI, Stochastic) to confirm my analysis. Below is stock chart for S&P500, I show some Technical Indicators (MA, MACD and Bollinger Band) only on the charts otherwise the charts will be overcrowded when I include all six Technical Indicators. - When the stock breaks below a strong support line.
If there is no clear support line on the chart, I will use Fibonacci retracement to identify the support level. 61.8% Fibonacci retracement level is a critical support or resistance level that I will pay special attention to.
When there are reversal patterns shown on the chart like Head & Shoulders, Double tops, Triple Tops.
When the stock price are testing the resistance or on top of the resistance of a channel.
When to Buy?
- When the stock is on an up trend. The stock is above 20D, 50D & 200D MA, and all technical indicators show bullish convergence.
When the stock price breaks the resistance with high volume.
When the stock price breaks out from the consolidation.
When the stock price retraces back close to the support line on an uptrend channel. I buy on the dip.
There are still lot more patterns I need to learn to perfect my entry points. I will continue to share in my stock chart analysis.
Thursday, September 24, 2009
General Electric (GE) - Fundamental & Intrinsic Value
Base on latest quarter:
- PE = 12.8
- Dividend Yield = 4.8%
- Net Earning = 7.5% (10.5% in 2008)
- Current Ratio = 2.2
- ROA = 1.64% (2.18% in 2008 Full Year)
- ROE = 11.5% (15.7% in 2008 Full Year)
- 10 Year Average Growth Rate = 3.9%
- Discount Rate = 5%
- Number of Shares = 10,393 million
- TTM Net Operating Cash Flow = $36,064 million
- Intrinsic Value = $32.76
- 5 years historal high = $42.15
- Current Price = $17.00 (only 40% of 5 years high & 48% discount to Intrinsic Value of $32.76)
The stock price is currently above 20D, 50D and 200D MA. Strong support at $14.57.
My target entry level is between $15.00 to $15.50 when the stock price retraces back to the support level.
Tuesday, September 22, 2009
China Zaino - Fundamental & Intrinsic Value
Base on Q2, 2009 financial report:
Intrinsic Value Calculation
PE Model
- PE = 3.5
- Dividend Yield = 5.8%
- NAV = $0.288
- Net Earning = 15.6% (18.3% in 2008)
- Current Ratio = 5.7
- ROA = 31.7% (Base on 2008 Full Year)
- ROE = 36.3% (base on 2008 Full Year)
- Cash Flow = S$199.8 Million (27% increase with reference to 2008 Full Year)
- 3 years historal high = $0.615
- Current Price = $0.30 (only 49% of 3 years high)
PE Model
- Fair value PE = 15, intrinsic value= $1.23 (base on EPS $0.08185)
- PEG = 0.24 (it looks like super under value!)
- Growth Rate = 15% (capped)
- Discount Rate = 5%
- Number of Shares = 945 million
- 2008A Net Operating Cash Flow = S$55.893 million, intrinsic value = $1.01
- Growth Rate = 15% (capped)
- Discount Rate = 5%
- 2009F EPS = $0.08185
- Intrinsic Value = $1.40
Sunday, September 20, 2009
How do I value a stock?
There are 3 different methods of doing a stock valuation.
As a general guideline, a company is at its fair value if the PE is about 15. If the PE ratio less than 15, it is considered under value, and vice versa. I also do a quick comparison of current PE versus the average PE historically. I will pay special attention to the stock price movement if the current PE is more higher than the historical PE average.
PEG refers PE ratio divided by company growth rate. PEG = 1 means that PE growth rate is the same as the company growth rate (measured by either EPS growth rate or net operating cash flow growth rate)
If PEG < 1, the stock price is under value.
If PEG > 1, the stock price is over value.
If PEG = 1, the stock price is at its fair value.
Discounted Cash Flow Model (DCF)
This model is to estimate the company next 10 years net operating cash flow (Future Value, FV) and re-calculate to the Present Value (PV), and add all ten years PV together. The intrinsic value can be calculated after dividing the total number of shares,. The assumption made is the company must be able to generate cash growth consistently with a CAGR (Compounded Annual Growth Rate) which computed from the past history of net operating cash flow.
Net Operating Cash Flow information can be found from the company annual reports, under the Cash Flow Statement.
Discounted Earning Per Share Model (EPS)
Similar to the DCF model, but this time Earning Per Share is being looked into. EPS information can be found at the Income Statement by getting the Net Earning number and divided by the total number of shares. By looking at the historical EPS, a CAGR for EPS growth can be calculated.
By bringing all the 10 years FV of EPS to PV, adding them together give an intrinsic value of the stock.
Valuation of a stocks need some financial background and need some practice. Two key areas to pay attention to:
(1) Where to find the information? All the financial statement can be found from the annual reports by going to the company web site. Another way is to get the summarised information from the website like Shareinvestor (for Singapore Stocks), Morningstar & MSN Money (for US Stocks)
(2) Understand the Financial Fundamental & Definitions like Present Value, Future Value, Discount Rate, CAGR and also practise how to use them. I use the financial calculator to calculate the CAGR and instrinsic value calculator to calculate the intrinsic value of the stocks. I got those simple software (formula in excel form) from my investment course.
I found that DCF model is a better model although it is a little more complicated because Cash Flow is not easily manipulated by the company accountant and cash is always easily be audited. If the company business model is solid, the net operating cash flow grows consistently every year. On the other hand, good EPS numbers do not mean the company is increasing the sales revenue and gaining competitive advantage to expand the market share. EPS can be manipulated easily as the company accountant can add whatever provision they want, using different amortization or depreciation method or using different revenue recognition method. Furthermore, the company can make the EPS more attractive by buying back shares, doing all sorts of cost cutting internally (like selling company fixed assets) to make the number looks nice.
After the intrinsic value is calculated, I compare the current stock price with the intrinsic value. If the current stock price is at least 20% discount to the intrinsic value, I will put the stocks in my watchlist and wait for the right time to buy. I will share in the next post on how I time my entry.
- Simple Price / Earning (PE) Ratio & PEG
- Discounted Cash Flow (DCF)
- Discounted Earning Per Share (EPS)
As a general guideline, a company is at its fair value if the PE is about 15. If the PE ratio less than 15, it is considered under value, and vice versa. I also do a quick comparison of current PE versus the average PE historically. I will pay special attention to the stock price movement if the current PE is more higher than the historical PE average.
PEG refers PE ratio divided by company growth rate. PEG = 1 means that PE growth rate is the same as the company growth rate (measured by either EPS growth rate or net operating cash flow growth rate)
If PEG < 1, the stock price is under value.
If PEG > 1, the stock price is over value.
If PEG = 1, the stock price is at its fair value.
Discounted Cash Flow Model (DCF)
This model is to estimate the company next 10 years net operating cash flow (Future Value, FV) and re-calculate to the Present Value (PV), and add all ten years PV together. The intrinsic value can be calculated after dividing the total number of shares,. The assumption made is the company must be able to generate cash growth consistently with a CAGR (Compounded Annual Growth Rate) which computed from the past history of net operating cash flow.
Net Operating Cash Flow information can be found from the company annual reports, under the Cash Flow Statement.
Discounted Earning Per Share Model (EPS)
Similar to the DCF model, but this time Earning Per Share is being looked into. EPS information can be found at the Income Statement by getting the Net Earning number and divided by the total number of shares. By looking at the historical EPS, a CAGR for EPS growth can be calculated.
By bringing all the 10 years FV of EPS to PV, adding them together give an intrinsic value of the stock.
Valuation of a stocks need some financial background and need some practice. Two key areas to pay attention to:
(1) Where to find the information? All the financial statement can be found from the annual reports by going to the company web site. Another way is to get the summarised information from the website like Shareinvestor (for Singapore Stocks), Morningstar & MSN Money (for US Stocks)
(2) Understand the Financial Fundamental & Definitions like Present Value, Future Value, Discount Rate, CAGR and also practise how to use them. I use the financial calculator to calculate the CAGR and instrinsic value calculator to calculate the intrinsic value of the stocks. I got those simple software (formula in excel form) from my investment course.
I found that DCF model is a better model although it is a little more complicated because Cash Flow is not easily manipulated by the company accountant and cash is always easily be audited. If the company business model is solid, the net operating cash flow grows consistently every year. On the other hand, good EPS numbers do not mean the company is increasing the sales revenue and gaining competitive advantage to expand the market share. EPS can be manipulated easily as the company accountant can add whatever provision they want, using different amortization or depreciation method or using different revenue recognition method. Furthermore, the company can make the EPS more attractive by buying back shares, doing all sorts of cost cutting internally (like selling company fixed assets) to make the number looks nice.
After the intrinsic value is calculated, I compare the current stock price with the intrinsic value. If the current stock price is at least 20% discount to the intrinsic value, I will put the stocks in my watchlist and wait for the right time to buy. I will share in the next post on how I time my entry.
Friday, September 18, 2009
China HongXing - Fundamental & Intrinsic Value
Base on Q2, 2009 financial report:
PE = 7.1
Dividend Yield = 1.2%
NAV = $0.3359
Net Earning = 9.7% (15.5% in 2008)
Current Ratio = 25.02
ROA = 10.2% (Base on 2008 Full Year)
ROE = 11.6% (base on 2008 Full Year)
Cash Flow = S$520.7Million (33.4% increase with reference to 2008 Full Year)
Stock Background
3 years historal high = $1.42
Current Price = $0.225 (only 16% of 3 years high)
Intrinsic Value Calculation
EPS Annual Growth = 15% (from 2005A to 2008A)
Discount Rate = 5%
Intrinsic Value = $0.54 (58% Discount of Current Price to Intrinsic Value)
PE = 7.1
Dividend Yield = 1.2%
NAV = $0.3359
Net Earning = 9.7% (15.5% in 2008)
Current Ratio = 25.02
ROA = 10.2% (Base on 2008 Full Year)
ROE = 11.6% (base on 2008 Full Year)
Cash Flow = S$520.7Million (33.4% increase with reference to 2008 Full Year)
Stock Background
3 years historal high = $1.42
Current Price = $0.225 (only 16% of 3 years high)
Intrinsic Value Calculation
EPS Annual Growth = 15% (from 2005A to 2008A)
Discount Rate = 5%
Intrinsic Value = $0.54 (58% Discount of Current Price to Intrinsic Value)
China HongXing & Jaya Holding - Another observations with one-lot trading!
China HongXing & Jaya Holding shown one lotter trading today but ended with different results today. I summarised the similarities of one-lot trading for Raffles Education, China HongXing & Jaya Holding as below:
China HongXing is swinging inside the channel, the channel support is between $0.215 and $0.22. If the price does not break this support level, the channel and uptrend is still intact and the price may go up to $0.27 & $0.28.
The one lot trading started at 10:08am testing $0.225 and later $0.22 for the whole day.
- All three stocks' prices are testing their support levels.
- One-lot trading starts at about 10:00am and about 3:30pm (except Jaya ends at 2:30pm today). I guess the professionals monitor the 1st hour of market movement before entering the trade at 10:00am. At 3:30pm, the professionals summarize the trade sitution before deciding the next step (either to enter a big position or abandon the trade). Three different outcomes for Raffles Education, China HongXing and Jaya Holding. Raffles Education ended the day with one white long candle; China HongXing ended with a doji but with a preclose volume of 2337 lots (big fish!); Jaya Holding ended with a short black candle (no big fish at preclose).
China HongXing is swinging inside the channel, the channel support is between $0.215 and $0.22. If the price does not break this support level, the channel and uptrend is still intact and the price may go up to $0.27 & $0.28.
The one lot trading ended at about 3:23pm and at the preclose one big fish bought 2337 lots to close the day. The price did not go up at the end of the day but it fullfilled my hypothesis that someone would enter big trade near the end of the trading session.
Jaya Holding One Lot Trading Summary (Sept 18, 2009)
Jaya Holding is testing its 20D MA support at $0.47.
The one-lot trading started at about 10am testing the support of $0.47 and ended at about 2:30pm at the level $0.465.
It looked like $0.47 support was not strong enough and the professionals stopped the testing at 2:30pm and abandoned the trade after all. There was no big entry at the end of the trading session. The stock price closed at $0.465.
Wednesday, September 16, 2009
Raffles Education - What an interesting trading lesson today!
I have been waiting for opportunity to sell off my Raffles Education (PE ratio = 28) shares because I don't feel comfortable holding this stock entering the historically most bearish month of the year. In addition, the stock price has been testing the $0.52 200D MA support line for a few days. Any breakdown of the support will start the down trend. Thus, I take a "Not to lose money" approach and wait for the price to go up to $0.525 (my entry point) to exit the position.
Coincidently I have a chance to catch an interesting trading session by some professional traders out there. I have been puzzled by why there are so many 1 lot selling out there every second and every minute for quite sometimes. I copied some transactions to illustrate my observations and tried to establish my own hypothesis. First of all, I don't believe there are so many retail investors doing one lot transaction because the stock price has to move up by 5% to breakeven (to pay for the transaction commission). I was thinking that professional traders might try to test the support between $0.515 and $0.52 (200D MA at $0.52) before entering a big position by end of the day. I observed the trade every now and then to prove whether my hypothesis was right because this phenomenon was something very new and strange to me. From the early morning trade, there were one or two lots sold at $0.515. As soon as someone bought at $0.52 (50, 11, 10, 5), the stock price dropped back to $0.515 immediately (by 1 lot). Refer to Screen 1. Screen 2 showed all 1 lot transaction at $0.52 (about 10:30am) to check whether anyone was queuing at this price.
Screen 1
Screen 2
At about 3pm, the testing was between $0.515 and $0.52. The price went back immediately to $0.515 by 1 lot. Refer to Screen 3.
Screen 3
15 minutes later, the price moved up to $0.52 and I can see some genuine retail investors were buying up (100, 26, 92) and suddenly a 500 lots transaction shown up! Refer to Screen 4.
Screen 4
At this point, it looks like the support line between $0.515 and $0.52 is very strong and unlikely the stock price will breakdown to start the down trend. The BIG FISH finally appeared bought 2921 lots at $0.525. Refer to Screen 5. My stocks were already sold by the time I realised the stock price was moving up.
Screen 5
From this point onwards between 4:20pm and before the market closed, all the small fishes, medium fishes, big fishes were rushing in to close the price at $0.54 with one long white candle! Refer to Screen 6 & 7.
Screen 6
Screen 7
Although I lost an opportunity to sell at $0.54 but this interesting trade was an eye opener to me. It looks like my hypothesis was right and hopefully I can make full use of this lesson for future trade. I am going to check with my trainer tomorrow!
Tuesday, September 15, 2009
FRE & FNM move into consolidation
Both FRE & FNM demonstrate the same chart patterns and move into consolidation phase after heavy trading last month. Both stock prices are above 20D, 50D and 200D MA but volumes are dropping.
FRE 61.8% Fibonacci support level at $1.714. It is a good entry level for long term investment if the stock price stays above this support line.
FRE 61.8% Fibonacci support level at $1.714. It is a good entry level for long term investment if the stock price stays above this support line.
FNM 61.8% Fibonacci support level at $1.483. It is a good entry level for long term investment if the stock price stays above this support line.
Note: FRE & FNM do not meet my stock selection criteria.
Monday, September 14, 2009
Jaya Holding - False breakout!
Jaya had a false breakout (due to lack of volume) and moved back to the consolidation phase again. The stock price is testing the 20D MA support line now and all other technical indicators are not showing any bullish signal. One thing to watch out whether the stock price can hold above the 20D MA support line. If it breaks this support line, I need to check Parabolic SAR & MACD to confirm whether it is a reversal of the trend.
Selection Criteria Checklist (Financial Perspective)
GROWTH
# The company has to meet the criteria consistently YOY
# Please check the link on the right under Education & Tools for financial ratio explanation & definition
- Sales Revenue YOY Growth > 10%
- Net Profit Margin YOY Growth > 10%
- Cash Flow > 10%
- Operating Cash Flow is growing YOY
- Net Profit Margin > 10%
- Low debts or Net cash
- Long Term Debt < 3 x Net Profit
- Current Ratio > 1
- ROA > 10%
- ROE > 15%
# The company has to meet the criteria consistently YOY
# Please check the link on the right under Education & Tools for financial ratio explanation & definition
How do I select a stock?
I analyse stocks in two perspectives:
(A) Business Perspective
(B) Financial Perspective
I will not buy the stock if I don't like their business, regardless how good the rating given by the analysts or how frequent the recommendation from my friends. I will never analyse the company in detail or pay attention to the related news if I don't have any interest in the business or the industry the company in.
2. Does the company has certain core competency and sustainable competitive advantage to have a wide economic moat?
I don't invest in those companies which business model is to compete in cost and without any product differentiation. These kinds of companies face fierce competition in the industry with low entry barriers and very unlikely to be sustainable in the long run. So, why bother to waste time to analyse and monitor these companies whether they will survive eventually? Furthermore, these companies are very unlikely to have consistent and nice profit margin year over year. Some examples are EMS companies (Electronics Manufacturing Services), low end plastic injection company.
Companies with niche technology or solution (e.g. Intel - every computer need microprocessor, Microsoft - every computer needs operating system), reputable global brand name (e.g. SIA - airline), niche environmental solution provider (e.g. Hyflux - water treatment), monopoly business (e.g. SPH - media, SGX - Stock Exchange), companies that backed by Temasek Holding (e.g. Chartered Semiconductor), companies that forms the pillar of Singapore's economy (Banks & Finance, Property), are the stocks under my monitoring portfolio.
(B) Financial Perspective
1. Does the company have consistent growth in Sales Revenue, Net Income & Cash Flow?
I read the company financial statement to check whether the company has minimum 10% annual growth in Sales revenue, net income and cash flow. I also check whether the company has minimum 10% net profit margin year over year as this number give me a rough idea whether the company has certain competitive advantage in their business. Operating Cash Flow is also another key thing to check because I want to make sure the company is generating positive cash flow from their operation due to business expansion year over year. Although some companies are making money in certain years but not necessary they are making money from their core business. Creative Technology is losing its competitive advantage and its business has shrunk significantly. However Creative Technology still reported profit a few quarters ago but when I deep dived to analyze Creative P&L Statement & Cash Flow statement, I found out that Creative Technology made profit by selling its headquarter building & won $100M patent lawsuit from Apple MP3. I have to watch out for any abnormality in one time profit reporting or one time write off as this will distort the financial statement and mislead me in the analysis.
2. Does the company have lots of debt or lots of cash? Does the company liquid enough to pay off its short term liabilities obligation?
I look for the company with low debts or have lots of cash, Current Ratio (Current Asset / Current Liabilities) > 1, Long Term Debt < 3 x Net Income.
3. How efficient is the company?
I use ROA & ROE to judge the efficiency of the company.
ROA (Return On Asset) measures how the company uses its asset to generate profit.
ROE (Return on Equity) measures how the company uses the money from shareholder to generate profit.
My criteria for ROA is > 10% and ROE > 15%.
Besides analysing the stocks from Business & Financial Perspectives, I also pay attention to whether any insiders (Chairman, CEO, COO, CFO, Board of Directors) are buying or selling the stocks. Insiders know the company inside out as they are managing the company daily. They have the most updated company information, financial status and future business plan compare to other peoples. I have to be very cautious if the insiders start selling the stocks in a massive way although the stock is still meeting all the criteria. It is better to avoid the stock than buying blindly base on the selection criteria.
(A) Business Perspective
(B) Financial Perspective
(A) Business Perspective
1. What business the company is doing? I will not buy the stock if I don't like their business, regardless how good the rating given by the analysts or how frequent the recommendation from my friends. I will never analyse the company in detail or pay attention to the related news if I don't have any interest in the business or the industry the company in.
2. Does the company has certain core competency and sustainable competitive advantage to have a wide economic moat?
I don't invest in those companies which business model is to compete in cost and without any product differentiation. These kinds of companies face fierce competition in the industry with low entry barriers and very unlikely to be sustainable in the long run. So, why bother to waste time to analyse and monitor these companies whether they will survive eventually? Furthermore, these companies are very unlikely to have consistent and nice profit margin year over year. Some examples are EMS companies (Electronics Manufacturing Services), low end plastic injection company.
Companies with niche technology or solution (e.g. Intel - every computer need microprocessor, Microsoft - every computer needs operating system), reputable global brand name (e.g. SIA - airline), niche environmental solution provider (e.g. Hyflux - water treatment), monopoly business (e.g. SPH - media, SGX - Stock Exchange), companies that backed by Temasek Holding (e.g. Chartered Semiconductor), companies that forms the pillar of Singapore's economy (Banks & Finance, Property), are the stocks under my monitoring portfolio.
(B) Financial Perspective
1. Does the company have consistent growth in Sales Revenue, Net Income & Cash Flow?
I read the company financial statement to check whether the company has minimum 10% annual growth in Sales revenue, net income and cash flow. I also check whether the company has minimum 10% net profit margin year over year as this number give me a rough idea whether the company has certain competitive advantage in their business. Operating Cash Flow is also another key thing to check because I want to make sure the company is generating positive cash flow from their operation due to business expansion year over year. Although some companies are making money in certain years but not necessary they are making money from their core business. Creative Technology is losing its competitive advantage and its business has shrunk significantly. However Creative Technology still reported profit a few quarters ago but when I deep dived to analyze Creative P&L Statement & Cash Flow statement, I found out that Creative Technology made profit by selling its headquarter building & won $100M patent lawsuit from Apple MP3. I have to watch out for any abnormality in one time profit reporting or one time write off as this will distort the financial statement and mislead me in the analysis.
2. Does the company have lots of debt or lots of cash? Does the company liquid enough to pay off its short term liabilities obligation?
I look for the company with low debts or have lots of cash, Current Ratio (Current Asset / Current Liabilities) > 1, Long Term Debt < 3 x Net Income.
3. How efficient is the company?
I use ROA & ROE to judge the efficiency of the company.
ROA (Return On Asset) measures how the company uses its asset to generate profit.
ROE (Return on Equity) measures how the company uses the money from shareholder to generate profit.
My criteria for ROA is > 10% and ROE > 15%.
Besides analysing the stocks from Business & Financial Perspectives, I also pay attention to whether any insiders (Chairman, CEO, COO, CFO, Board of Directors) are buying or selling the stocks. Insiders know the company inside out as they are managing the company daily. They have the most updated company information, financial status and future business plan compare to other peoples. I have to be very cautious if the insiders start selling the stocks in a massive way although the stock is still meeting all the criteria. It is better to avoid the stock than buying blindly base on the selection criteria.
Synear - end of the trend and move into consolidation phase
Synear closed with a short black candle today at $0.33. I have to abandon my swing trading plan on this stock because the trend has ended and the stock price now enter into consolidation phase and move sideway. Synear does not meet my Value Investing criteria and I have removed Synear from my watchlist.
Saturday, September 12, 2009
How do I invest in stocks?
Gone of the old day (as newbie) when I just invest base on what other people said (friends, collegues, newspapers and even BANKS!). I've even lost money after listening to Bank's "RECOMMENDATION" investing in mutual funds and currency. I also had a chance to learn from a new friend who previously was a remisier, the dark side of the stock market. "Someone" is just out there to make money from the retail investors like most of us. Those were really painful lessons as I threw away my hard earn money to make someone rich.
Fortunately, I took action to better equipped myself to continue to play in this investment game. I consider myself a better investor now with the knowledge I acquired from the investment workshop.
There are 3 parts of homeworks I do before putting my money in particular stocks:
Fortunately, I took action to better equipped myself to continue to play in this investment game. I consider myself a better investor now with the knowledge I acquired from the investment workshop.
There are 3 parts of homeworks I do before putting my money in particular stocks:
- Identify and select a good stock / company with a good business.
- Value the stock price to see whether it is undervalue.
- Plan my entry point and exit point. Do technical analysis to determine the right time to buy and sell.
Insiders Selling in US stocks
Entering 3rd week of September, I am getting very cautious on the stock market and also waiting eagerly of the market correction. I plan to off load my penny stocks this coming week as things do not really look good and I just don't feel comfortable holding the stocks now.
I read two consecutive reports regarding the insiders selling these few days. The reports mentioned that there are many Corporate officers and directors in US have been selling the shares at great pace since August. They are the one who know the company inside out and they know what is the fair value of their company. In the principle of "Buy Low Sell High", this selling of stocks by insiders is a very clear signal that the stock price is over value and the future earnings do not justify the current stock price. This is the leading indicator that stock market is going for a correction very soon. I will believe this indicator more than other analyst reports and preserve my cash first!
I read two consecutive reports regarding the insiders selling these few days. The reports mentioned that there are many Corporate officers and directors in US have been selling the shares at great pace since August. They are the one who know the company inside out and they know what is the fair value of their company. In the principle of "Buy Low Sell High", this selling of stocks by insiders is a very clear signal that the stock price is over value and the future earnings do not justify the current stock price. This is the leading indicator that stock market is going for a correction very soon. I will believe this indicator more than other analyst reports and preserve my cash first!
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