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The Jackpot Stocks!

In the last two years I found an interesting fact in the market, where there are some stocks which are fundamentally good, with reasonable or even undervalue price, but their price movement are slow. Within a few months, these stocks sometimes just moving around at narrow range. For example, if at the beginning of January the stock was in position of 1,000, then at the end of June he would still in the position of the 1000's. But in a particular time between January to June, the stock might suddenly rose significantly, perhaps up to 2,000 or 2,500 in just one or two months, before then turning back to 1,000. So in this case, investors who buy the shares at the price of 1,000, then sell it at the price of 2,000, you may say that he has gained the jackpot.

But you should not think that the 'jackpot' could happen every day. Sometimes the investors have to wait long enough, could for months, just to get a single jackpot a year. Some lucky ones may obtain the jackpot quickly, where he bought the stock on Monday, then it is skyrocketed on Tuesday. But some others may have to wait for months, sometimes with some shakes during the course (instead of skyrocketed the stock was down first).

But the point is when the jackpot was obtained, then the gain can be significant, may reach 50% or more. So, let's say you only get a single gain of 50% in one year, then it was pretty enough, right? And it is also very much above the market average, because the average increase in JCI itself is below 15% per year.

Anyway, the main key of investing in these jackpot stocks is that you should know that the price is not going down from the point at which you bought it. Or if it goes down, then sooner or later it will go up again. And a stock will only not go down if the fundamental quality is quite good, and the performance is consistent in the long term, while the stock valuation was already very low, both relative (viewed from PER), and absolute (its PBV less than 1 time).

Then, when a stock is not able to down further, then what does it mean? That means, it could rise at any time. You will never know when the stock will go up, but the important thing is, you know that the stock will go up.

But, are there any stocks like that? Yup, there are! Here are my version of the 'jackpot stocks':

1. Ekadharma International (EKAD, we’ve discussed it here)
2. Gema Grahasarana (GEMA)
3. Multi Indocitra (MICE)

Here are the some points of analysis of the three stocks, and why they can be called as jackpot stocks.

1. The three companies play in easy and simple industries. EKAD is a manufacturer of adhesive tape with the brand of 'Daimaru', GEMA is a company of interior design service and manufacturers of furniture products under the brand of 'Vivere', and MICE is a manufacturers of baby needs with the brand of 'Pigeon'. Particularly for EKAD and MICE, I considered that both companies producing consumer type products, which are needed continuously by many people, and it is certainly good. While for GEMA, although its products are not fast moving goods, but the development of its business in recent years looks quite impressive, which is likely driven by the increased appetite of urban communities about the interior quality of their homes, offices, and apartments.

2. The three companies have a strong brand for their products respectively. You may already quite familiar with the brand of Vivere and Pigeon. While for Daimaru, well, I never take a look at the brand if I was buying a duct tape, but CMIIW, for the duct tape sold at Ace Hardware, it was of the Daimaru brand.

A collection of 'Pigeon' products

3. The three companies focused on their respective industries, so they are experts in their respective fields. Take a look at EKAD, which just manufacture duct tape alone, and do not ever try to acquire a coal mine, for example. For MICE, the company is trying their luck in energy-saving lamps business with the brand 'Hori', but so far it does not interfere with the company's core business.

4. The three companies operating conservatively, running the business as it is. They just make products, then sell it, that's it, no right issue, no bonds, or the like. They also have almost no debts, where the DER of EKAD and MICE are below 1 times respectively. But for GEMA, its debt is sizable anyway.

5. All three companies are managed by a good, honest, and fair management team, where it can be seen from: 1. The companies routinely distribute dividends annually, 2. The companies routinely conduct the activities of business development in a reasonable manner that is not excessive, for example, set up a new plant, opening new outlets, to create a new variant of products, etc., and 3. Until now, I have never heard the news that the three companies void its shareholders general meeting because they failed the quorum, then the attended investors became angry and violent just like they’re losing a soccer game, if you know what I mean!

And by the way, to find out more detail about the characteristics of the good management, you can read the article here. Okay, next!

6. The three companies have a quite good and consistent long-term performance. In the most recent financial reporting period (third quarter of 2013), the net profit of MICE and GEMA is slightly down. But in the last five years, their growth in terms of the increase in net capital, revenue, and net income, everything looks pretty good. You can read the data in each of the company's annual report.

7. The three companies have a good current ratio, where their current assets are significantly larger than their non-current assets. This means that if something bad happens to the company (they went bankrupt), then the assets will be easily liquidated. The ratio of asset turnover is also good, where the revenue value of MICE, GEMA, and EKAD in one year is usually greater than the value of the total assets of each company. Just a lil’ note, these two criteria are usually only held by consumer companies, and chicken feed companies (Charoen Pokphand Indonesia/CPIN and its colleagues).

8. The three companies have a quite good general financial performance, although cannot be said very good. Except MICE, both EKAD and GEMA have considerable profitability ratios, with their ROE in the range of 20%. If sorted by the quality of their financial performance in the third quarter of 2013, the stock with the best fundamentals is EKAD, followed by GEMA, and MICE. Whether coincidence or not, EKAD valuation at this point is also the highest among the three, while MICE is the lowest. More can be seen in the table below:

And finally, beyond the eight points above, the most interesting factor of EKAD, GEMA, and also MICE, is the low valuation of their stock price, or even very low when compared to the average valuation of all shares on the exchange. Here is the data, the stock price is the closing price dated December 20, 2013:

Price (Rp)
PER (x)
PBV (x)
Dividend Yield (%)

These low valuation factors is what makes the three stocks above, unless there is extraordinary events related to the specific company, or the stock market itself is crashed just like the year of 1998 and 2008, have very small risks to dropped significantly from its current price, as they are already low. Also because, the three companies are still operating normally, still making a profit, and their equity also continues to grow. I mean, sometimes there are some cases where the valuation of a stock can be very low, or even much lower than the real value of its assets (its PBV is much lower than 1 time, perhaps only 0.5 times or even lower), because of its poor performance, the company had huge debts which they can not afford to pay, or their business sector was hit by a negative issue.

But for the three companies which are being discussed here, these factors did not exist. So they are really undervalue.

Okay, then how did you call the three stocks as ‘jackpot stocks’? Well, it's because if you notice, all of these stocks, they may suddenly skyrocketed at certain times. For get the real, just look at their price charts in the last 1 - 2 years, could in Yahoo Finance or your trading software. The last case of 'jackpot' is GEMA, where it had suddenly increase to 790 positions in last June, after previously only pacing in the range of 450 - 500. While for MICE, its latest jackpot occurred in April 2013, where it rose from 450 to 860, aka gained almost 100%! before then turned down to its present position. And how about EKAD? Please check it by yourself.

But there is one interesting thing of note that I have noticed from this jackpot phenomenon, that is: The three stocks are usually becoming popular in the trader’s community after the price had gone up. And also that is usually when people realize that these are good stocks, so they bought it at high prices.

But what if the price is at their low positions, just like now? Then no one's talking about the stocks, and possibly no one’s interested in buying them. This is ridiculous, because if based on the rules of value investing, this is the right time to buy the stocks, and then sell it later when the 'jackpot' is happening. Not the otherwise!

But whatever it is, this phenomenon proves that you do not have to worry about investing in stocks like this just because of their illiquid volume of trading. Because when these stocks are eventually go up, then you may get out aka realize your profits easily, because there will be many people who buy your stock at high price. Maybe this is also causes Lo Hong Kheng to not hesitate to buy the stock of Petrosea (PTRO), up to tens of millions of pieces despite the stock is relatively illiquid with an average trading volume of only 1.5 million pieces daily. Because when PTRO is eventually rise, he would not find it difficult to release the stock, because there will be many people who volunteered to absorb it.

However, the biggest problem in investing in these stocks, as already mentioned above, is that we do not know when they will rise, because you are not paranormal (are you?). We will never know when the jackpot will happen, could be tomorrow, next month, or even next year. So if you are not lucky, then perhaps you will have to hold the stocks for a looong time (‘long’ here is for the size of traders, not investors). And it is actually possible when you finally give up and decided to get out, the stock is eventually skyrocketed the day after! I said this because, to be honest, I had my own experience in the stock of MICE, where I missed the jackpot of last April, after waiting impatiently for two months. Anyway, it's never too late to try it again, right?

Okay , I think that is enough for this week, we’ll continue it later.

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