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':
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:
Stocks
|
Price (Rp)
|
PER (x)
|
PBV (x)
|
Dividend Yield (%)
|
EKAD
|
390
|
6.2
|
1.2
|
2.1
|
GEMA
|
460
|
4.7
|
0.9
|
6.7
|
MICE
|
400
|
7.9
|
0.7
|
3.8
|
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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