Post-Brexit updates, and small thoughts about Noble, Keppel and Yoma.

The Brexit pessimism sold down markets heavily. There is an old saying that cheap becomes cheaper.

While it is necessary to keep a positive frame of mind that markets will eventually recover, one should not forget the fact that a correction doesn't equates that all stocks are cheap now. The need to have some basic fundamental knowledge and control over one's emotion is applicable at these times.

By that I mean selling in panic, or buying in a frenzy.

I have been keen in quite a few companies lately, especially after they have gone into trouble. I guess it will help to discuss them briefly here

Noble
Clearly they are in debt and tons of trouble. But raising equity via such a heavy rights issue is a major deal-breaker for me. I guess what I can take away from reading Peter Lynch's One Up on Wall Street is that companies usually turnaround successfully from diluting shareholder's equity but the end-result usually wouldn't reward shareholders in the end.

There are better bets out there especially when your capital is as limited as mine.

Keppel Group
Keppel is a conglomerate and they want you to know that.. especially when their cashflow is severely affected by their Offshore and Marine (O&M) division. Revenues are contributed mostly by O&M and Property, and this is the first time in 3 years that property contributed more $ to Keppel than O&M.

Hence about 5,000 employees in O&M lost their jobs this year. Interesting enough, manpower cost remains the same for the last three years. I have no idea why this has come to pass and I hope shareholders asked during the AGM.

I have no idea how to value Keppel as it is a cyclical company. However I have faith that this company will definitely not go belly up as its major shareholder is Temasek Holdings. This does not mean that shareholders will lose capital (Remember NOL?).

Price of shares follows earnings in the long run. The question is whether Keppel is nicely priced at 5.2x? I have no idea. Its free cash flow is extremely volatile. But no worries about the dividend pay out and whether the company has shareholders' interest at heart. They paid 40 odd percent of retained earnings to sharehodlers in 2014, and paid 50% this year. I don't think dividends will suffer too much.

It is also vague in whether the 230million provisions for Sete Brasil's unsold rigs is enough. I have not scrutinized the report yet, though.

Yoma Strategic Holdings
I can't read annual reports off the screen, and I paid some printer almost 9 SGD for this report to be printed... but before I can finish half of the report, I am already put off by loans extended to customers. Hence I doubt I will be investing in this company. The introduction of his son as the CEO is no problem but it seems like an abrupt decision to me.

I intend to look elsewhere.

Time to Watch by the Sidelines?

This will be a really short post.

When I started investing, I frequently look at stocks trading at 52-weeks low. I have been doing it frequently from BarChart 52-weeks low, looking at its balance sheet and thinking if it makes a good turnaround bet. I had a few success in spotting these stocks but unfortunately, I wasn't confident in my abilities then, and watch stocks like Spartan Motors (SPAR), and MidSouth Bancorp go as high as 100%.

Such a practice can be pretty robotic, getting the list, and looking at its balance sheet quickly. It has been a while since I did that though, and I was very surprised today.

And today, there is really only a handful of stocks, regardless of market capitalization, that is trading at 52 weeks' low, and that smells like the market could possibly be overly optimistic.

I don't know about you, but I very much prefer to stand by the side of the court and wait.
While it is usually better to be vested most of the time, I think it might be prudent to lay hands off the American market. I still vested in SGX, in stocks that I find that are cheap.

Hopefully it will pay off in the long term.

A Little Talk about My Portfolio

Primary Holdings

Sim Lian Group

Sim Lian Group is a respectable property developer that is purchased because I believe it is trading at a huge discount to its cashflow. The dividend yield is very high at the moment-- which is deceiving because the yield is derived from a special bonus last year.

The biggest reason why this company is a little different from other small-scaled property developers-- check out the board members and you will know what I mean. I leave the fun to you..
  

Capitaland Commerical Trust

The stock is trading at a significant discount to its net asset value. Recently they have acquired the whole of CapitaGreen and is expecting it to be accretive for shareholders. This bring debt-to-equity at 37%, which is not all that bad.

The property yield of CCT is actually weaker than Fraser Commerical Trust, but on the whole the quality of CCT's properties is higher, so I am not so concerned. Holding on to my paper losses at the moment and waiting for a good chance to average down.

Secondary Holdings

VICOM

 A needless fear among investors for this stock, which is down-trending. The main rationale for buying this stock is for the quality of its dividends. When a friend of mine draw attention to me about it trading at 52-week low, I took up a small position without much consideration.

Singapore Shipping Company

Small company, some debts, decent cashflow, but single-customer. Based on cashflow over the years, it is considered cheap at 0.27x and but there are some concerns with its business fundamentals, namely an inexperienced CEO (family business, ahem), and single-customer risk.

DBS

DBS was purchased because it is trading at 0.9x book value. Not one of my proudest purchase since I did very little homework. It is a easy one to make since this is Singapore's biggest and one of Asia's biggest. I don't expect terrific gains.

UOL

Trading at below book value and strong management. Even if Mr. Wee leaves the business, it will still go on strongly. However, the rental and property developing business is facing headwinds regionally, and earnings should remain suppressed. I have taken up a small position just in case the price becomes more favorable, and I can build on my position.
 

Sing Holdings

With the latest quarter report, it appears that Sing Holdings is now debt-free, but have a variable asset in Account Receivables and unsold properties. It will be very interesting to see what it does for the rest of the year. Any company that is debt-free and a 0.5 book value per share should be quite safe for long term holding.

Small Holdings

Ascendas Hospitality Trust

This stock is trading at below book value. It has a pretty patchy property yield as the trust is still so young (property accumulation stage), so the dividends should offset some risk. Staying vested and waiting on the side lines for a change in its story.

CapitaMall Trust

This company's property yield is extremely impressive but it is trading at a significant price over book value. I will add on to my position should fear take over the market again, as it was with much regret that I did not partake in this during this Feb's great correction. I am eager to make this one of my main holdings.

One Up on Wall Street- A Short Review

I have just completed my first reading of Peter Lynch's classic text, "One Up on Wall Street," recently.

While the contents of this book is extremely palatable, it contains very little technical information and little is mentioned about valuation. I am a little amused because while this book is easily understandable, it should be best read by someone who had a look at more technical books such as "5 Rules to Successful Stock Investing."

The danger is that Mr Lynch made it sound too easy.

There are of course good takeaways from this book, such as classifying companies into 6 different categories, which are:

• Turnarounds- Stocks like Noble who are issuing new shares would be frown upon by Peter Lynch as they usually does not bode well for investors in the long run.
• Slow Growers- usually dividend stocks. Various REITs, ST Engineering comes to mind. This company desperately need a breakthrough of some sorts to increase revenues
• Fast Growers- Best World, who is expanding into China, have a sizable market to grow at.
• Stalwarts- Apple could be deem as a stalwart, but I thinking of DBS when it comes to local markets
• Cyclicals- Property Developers, Keppel, Sembcorp Marine. Times are bad now, but things will definitely be better if their balance sheet remains healthy. Basically cyclical companies generate tons of revenues during good times.
• Asset Plays- Stocks that are the proverbial "50cents for a dollar." Could be as simple as cash (Sing Holdings, possibly), property (SMRT with its many malls) , or companies holding equities of well-to-do equities (Yahoo comes in mind).

I also love the idea of developing a "story" for your stock. You need to pitch a stock, to yourself, and it serves as a good reason to sell it when the story changes.

For e.g. assuming a stock like GSK, who is paying excellent dividends but isn't growing rapidly (a slow grower), started to fail in paying a dividend, that will be cause for concern.

An asset play that has its property valued down recently could also be cause for concern.

As with most books I think it is worthwhile to re-read them a couple of times to digest the concepts fully, and I am in the process of doing so.

Peter Lynch's One up on Wall Street in Book Depository