Why I will still buy stocks

I am bullish on the markets for reasons cited below:

• Few people own shares now

Equities are now in the hands of a relative few who stand to gain significantly when investors start creeping off the sidelines and out of the ‘safety’ of treasuries.

• Unsustainable yield differential between equities and treasuries

Never in modern history has the yield differential between these two been by so much and for so long.  During both instances (GFC and bear market of 1974) the yield differential were so high, they lasted only for a few months, compared with its sustained position over the past 12 months.

• Strengthened operating margins and balance sheets (after buyback programmes and deleveraging)

Following the GFC, major companies have returned to their core competencies, reduced costs and lowered gearing levels, improving their competitiveness. Leverage levels in companies are now the lowest in 20 years.

• Investor sentiment

We are still well entrenched in the early stages of scepticism, thanks in large part to the ongoing euro debt ‘crisis’, and persisting market volatility.

• Inflationary pressures could spark mass flight from treasuries to equities

extracted from "A bull market in the making?"

Written by Brad McFadden on February 19th, 2013

Malaysia Boleh?

Analysis of market trends during past elections have shown a consistent pattern, according to RHB's Lim Chee Sing. Typically, a week or two before elections are announced and parliament is dissolved, equities are sold down. Then, after elections are over, these same stocks recover quickly. Malaysian elections are due soon on Mar 30. Parliament could be dissolved by Feb 22.

These are stocks recommended by Lim:

Company	Price @ Feb 13	PER	Dividend Yield (%)
Genting M’sia	3.73	16.2	2.3
CIMB	7.25	12.3	2.1
Gamuda	3.70	13.7	3.2
Lafarge M’sian Cement	9.24	21.8	3.7
Tasek	14.28	16.7	4.2
Sunway	2.41	7.1	-
Dialog	2.33	30	1.3
Dayang	2.46	13.4	4.1
Perdana Petroleum	1.11	25.8 (est)	-
Perisai	1.02	9.4	-

I have done a scan, but found these stocks (other than CIMB) still too high. However, if really there is a huge correction after elections are announced, I may buy.

The Edge's 2013 Stock Picks

Last year, the Edge's picks (refer to last year's post) earned a respectable 33.9%. Its top performer, Pan Utd earned 128%!), outpaced the STI's 17% gain. The updated table below:

 

	Price 2012($)	Price Now($)	Gain/ Loss(%)
Bt Sembawang	4.10	6.68	69.2
CMA	1.31	2.17	68.9
FJ Benjamin	0.30	0.29	-0.4
Genting HK	US$0.35	US$0.43	22.9
Noble	1.36	1.20	-9.8
OKP	0.57	0.55	-0.3
Pan United	0.46	0.98	128.3
Semb Marine	4.92	4.65	-0.9
ST Engineering	2.85	4.00	47.3
UOB	17.4	19.11	13.4

It has published this year's picks, and they sure are worth taking note.

Stock	Current Price as at 2013	Reasons for Upside	Reasons for downside
Auric Pacific	1.18	New mgt; potential for improved synergies with subsidiary Food Juction	Execution risks on turnaround cost increases
CWT	1.41	Differentiated offering and proxy to global economic recovery	Volatility in earnings, particularly from commodities business
Db X-trackers CSI300 Index ETF	US$8.73	Proxy to China recovery; underperformer versus local and global market	Political transition in China; reversal of economic recovery trend
Del Monte Pacific	0.86	Play on Asean consumption; possible re-rating of Philippines debt	High valuations and execution risks in new markets such as Myanmar
Indofood Agri Resources	1.30	Beneficiary of likely rebound in commodity prices; diversified player	Global economic rebound stalls and causes commodity prices to sink again
Midas	0.54	Likely to win contracts for high-speed rail as China steps up investments	Failure to win major contracts or delays in China’s awarding of new projects
Neptune Orient Lines	1.26	Proxy to global economic recovery, which should boost trans-Pacific trade	High gearing, oversupply in the market could weigh on freight rates
Sembcorp Ind	5.49	Offshore industry still booming, possible inflection year for utilities business	Stock rose a lot last year and contributions from SembMarine are lumpy
Swiber	0.68	Investment over the last year could allow it to capitalise on offshore boom	High level of debt and inherent risk in business model
TT J Holdings	0.28	Supports the local construction industry and could win several contracts this year	Small player with no analyst coverage

CSI is an index, and since index returns are not spectacular (I am looking at multi-baggers to accelerate my dreams of financial independence), I will give it a miss.  I already have Midas and NOL, so these are out. Sembcorp, as the authors have acknowledged themselves, is at a high, so this is out too.

This leaves me with Auric, CWT, Del Monte, Indofood, Swiber and TTJ. Auric, CWT, Del Monte and TTJ are already on firm uptrends, so the only way to buy is via a correction. This leaves me with Indofood and Swiber. Even then, I will want to wait for a softer market.

Stock to buy 2013 #1: ASL Marine

I am waiting for the market correction, and if it really comes, I want to buy some stocks. ASL is one stock on my mind.

Fundamentals:

2Q13 earnings for ASL Marine in line, +40% y-o-y; gross margins continue to impress. The slow YTD order wins is not a concern; we expect back-end loaded wins as yard capacity frees up. While 1H FY13 forms 40% of our full year forecast, we keep our numbers intact as we expect a stronger 2H13.

Maintain BUY, TP S$0.90. ASL remains firmly on track to post a strong 52% earnings recovery in FY13F, supported by its S$528m shipbuilding orderbook which provides visibility up to end FY14. Technically, the stock has re-based at $0.73 (support) over the past 3 weeks and looks ready to resume its steady rising trend for a re-test of the post-GPC high at $0.795. Based on Fibonacci projection, a rise above this level should lift the stock to $0.95 in coming month(s).

 

(Source: DBS Vickers)

 

Technicals:
Definitely on an uptrend. However, I am not too excited about the stock now, as it just made a 52-week high, and has displayed bearish engulfing. But, will relook if correction takes hold.

 

Reasons to buy if market corrects

At this juncture, I am still bullish on the markets, but is also prepared for a market correction, now that the markets have had a nice run. I tend to agree with Eastspring's Robert Rountree, that "it's just before dawn" and Asian equities time in the sun may be just around the corner. By the way, Rountree was known for being a prescient economic prognosticator and fearless market forecaster, who called the big Asian bull market back in 1993, and then in 1997, pointed to fault lines in Thailand long before the Asian financial crisis.

Here's why he is bullish:

1. Asian markets were heavily discounted due to inflation and earnings concerns. Now that they have dissipated, investor confidence is returning.
2. US Central Bank will not stop printing money until US unemployment rate falls to 6.5%. That could be another 18 months to 2 years away.

However, there could be a breather in the markets soon, but not to worry, as the rally will return stronger after that. Hence, get ready to buy even more when market does correct.