May participants of Stock Challenge reap fantastic gains!
WE ARE starting another 6-month Stock Challenge, where five participants get to invest a hypothetical $100,000 in equities.
The timing cannot be better, it seems. The market has plunged and three of our participants have quickly put their money to work in the last one week. Already, Sebastian Chong is up a massive 17.4% within days after he deployed $87,420 into stocks.
He has a very diversified portfolio of 13 stocks, and they are all profitable except one.
Aside from Sebastian, there is DanielXX who is a familiar name to most readers. Three other participants are NextInsight readers and new to this challenge – Gary Teh, Level 13 and Kennysjq. Please read their bios below. Gary had earlier indicated his interest in taking part, but he has been on vacation since and could not be contacted. We consider that his starting portfolio is $100,000 cash.
Each of the participants is contributing $100 (real money) for the prize money of $350, $100 and $50.
Okay, now for the details of the participants' portfolios and reports ....
*****
Stock | Number of shares | Purchase price ($) | Oct 31 closing price ($) | Value of holding ($) |
SGX | 4,000 | 4.46 | 5.10 | 20,400 |
Jardine C&C | 2,000 | 8.20 | 9.26 | 18,520 |
| Capitaland | 2,000 | 2.47 | 2,85 | 5,700 |
| KepLand | 3,000 | 1.49 | 1.85 | 5,550 |
| Wilmar | 3,000 | 1.87 | 2.47 | 7,410 |
| Sino-Environment | 20,000 | 0.425 | 0.61 | 12,200 |
| Straits Asia | 8000 | 0.825 | 0.95 | 7,600 |
| Mercator | 50,000 | 0.115 | 0.145 | 7,250 |
| Li Heng | 20,000 | 0.20 | 0.25 | 5,000 |
| Yanlord | 5000 | 0.74 | 0.73 | 3,650 |
| Metro | 10,000 | 0.37 | 0.39 | 3,900 |
| Bukit Sembawang | 1000 | 3.61 | 3.98 | 3,980 |
| Synear | 20,000 | 0.115 | 0.185 | 3,700 |
| Cash | 12,580 | |||
| Total | 117,440 (+17.4%) |
Sebastian Chong
Sebastian Chong has invested actively in equities since the 1970s. He is managing director of Financial Info Analysis Pte Ltd, a company he founded after he retired as an accounting professor at the National University of Singapore. He now runs his popular investing website, www.shareowl.com
Sebastian says:
Out of $100,000, I have invested $87.42k. I feel that the stock prices are low enough with the STI at 1,504.08 compared with the Oct 2007 peak of 3,906.
It would be more risky to wait further for the STI to strike a lower bottom. The amounts invested in large and small/mid caps were $49.26k and $38.16k, respectively. Usually my exposure to small and mid caps would be less than half of that put into large caps.
But now the valuations of small and mid caps are so cheap that the margin of safety has become almost as good as that for large caps provided the stock picks are done carefully.
SGX is still highly profitable.
Large Caps
SGX: SGX is the mother of all stocks and though the PE based on estimated earnings for the current year ending 30 June 2009 may be as high as 15, I would consider this price of 4.46 as being very reasonable. We have seen that in very bullish markets, stock exchanges worldwide can trade at PE multiples of 50 or higher.
But at those multiples, it is usually advisable to sell off an exchange's shares as very high multiples are encountered when the market is overheated. SGX has strong and innovative management which has been successfully increasing the proportion of revenues that are derived from derivatives trading. In previous severe bear markets, our stock exchange usually incurred losses. But in this bear market, the SGX is still highly profitable.
Jardine C&C: Over 80% of the group's earnings and revenues are derived from 50.1% owned Indonesian subsidiary PT Astra International. The Astra group is involved in motor distribution (including Toyota cars and Honda motor cycles), heavy equipment distribution (including Komatsu), financing of vehicles and equipment, palm oil plantations and processing, and a 44.5% stake in Bank Permata, a growing Indonesian bank that is managed by Standard Chartered Bank which owns the other 44.5% stake.
Since Indonesia is a developing economy with a population of 130 million people, the growth prospects for Astra's various businesses are simply enormous over the next few decades.
CapitaLand: It has recently deleveraged and now has around $4 billion worth of funds waiting for new property development opportunities. The peak price was $8.25 in 2007 and that is just a rough indication of the future potential of Capitaland shares in the longer term.
KepLand: It has several quality projects like the development of Marina Bay Financial Centre, seaside residential development of the former Keppel Shipyard site at Telok Blangah, and residential projects in Vietnam. The low share price has more than factored in the current slowdown of the property markets which may recover as early as 2010.
Wilmar: It is not just a big owner of oil palm plantations. It is even bigger in downstream palm oil based food products.
Small and mid caps
Sino-Environment: It is in environmental engineering and has a relatively short but great track record in generating profit and operating cash flows in waste gas treatment, waste water treatment, and dust elimination. It has been moving aggressively into desulphurization and denitrogenation and has a
strong order book in these new segments.
Output in Straits Asia Resources mines is set to increase.
Straits Asia: This was a large cap stock when its share price was in the $2 to $4 range in certain months this year. Now it is mid cap stock after the global coal price came down to a new low in October. The coal price is unlikely to come down much further and I think it should recover by 2010 at the latest. In any case, the output in both the south and east Kalimantan mines is set to increase and the estimated reserves at both mines would make the stock truly undervalued at current prices.
Mercator: This is one of the most misunderstood shipping stocks. The price is now so low compared with its first day trading price of above 60 cents many months ago because the Baltic Dry Index (BDI) of freight levels is at a 6-year low. But the BDI should not be used to judge this stock because Mercator (Singapore) focuses on the shipping of iron ore and coal from suppliers in South America and Indonesia to China and India and also serves the intra-India coastal routes. Its vessels are very young and they command attractive charter rates in long term and medium term contracts.
The current PE is well below 2 and its share price is also less than half of its book value based on the market value of the vessels. The charter revenue is largely locked in at high charter rates for the next 9 months or so and it is unlikely that subsequent charter revenue would drop so low as to cause the group to incur a loss. In any case, the margin of safety is great enough for the long term at this low share price.
Li Heng: This synthetic fibre company is quite popular with both investors and traders. The earnings growth story is still intact and it is cash positive.
Yanlord: This China developer is quite well-known for its prime locations and high quality finish in Pudong, Shanghai and elsewhere in China.
Metro: Non-investors know Metro for its department stores in Singapore but savvy investors know that the value of Metro lies in its prime investment properties in China's key cities. They have raised funds earlier this year (at the right time) and are now looking for prime lots of land in the cities that are less inflated. They are not in a hurry and are unlikely to overpay for land or construction costs.
Bukit Sembawang: At last the stock price fell to this level. Probably certain funds are finally unloading because of redemptions. I am not sure if the unloading is over but it looks attractive enough. Bukit Sembawang still have lots of land in the northern part of Singapore that were bought several decades ago.
Synear: This food group specializes in meat and sweet dumplings sold in frozen packets in supermarkets in many parts of China. I believe that next year onwards would see better days after they were hit by high pork prices, then snow storms in southern China earlier this year and high advertising costs for the Olympics. They are cash positive.
*****
| Stock | Number of shares | Purchase/Short price ($) | Oct 31 closing price ($) | Value of holding ($) |
Bright World | 56000 | 0.27 | 0.35 | 19,600 |
| Wilmar | 20000 | 2.37 | 2.47 | 7,480 |
| UOB | 4000 | 13.56 | 13.02 | 13,008 |
| Cash | 64,552 | |||
| Total | 104,640 (+4.6%) |
Level 13's avatar
Level 13 is a 31-year-old retail investor and a business analyst with 4 years of investing experience. Check out his blog for insights on financial matters (mainly equities).
Long Bright World: I am confident that all the pre-conditions of the takeover offer will be fulfilled in the coming months. Even though there is no guarantee, I feel the potential return outweighs the associated risks. Moreover, some sweeteners have been included in the post-acquisition period for current shareholders of China Holdings Acquisition Corp which bodes well for the success of this deal. More details of my analysis can be found at my blog.
Short Wilmar: Shorted Wilmar purely for trading purposes. I feel that the buy-in was overdone as it gained about 20% from Monday to Thursday last week. There was a rebound in CPO prices in the last 10 days or so. But I believe this upsurge in prices will be temporary.
Short UOB: Shorted UOB as I expect its 3Q earnings report to be weak as compared to the last quarter. I see the UOB share price on a downward decline and took the opportunity to short it when there was a small rally on Thursday 30th Oct. I believe the demand for loans will continue to be soft and thus UOB’s margin will be affected. Further impairment charges will have to be taken as we progress and that will reduce the profits too.
*****
| Stock | Number of shares | Purchase price ($) | Oct 31 closing price ($) | Value of holding ($) |
CH Offshore | 113,636 | 0.22 | 0.22 | 25000 |
| SMB United | 227,273 | 0.11 | 0.11 | 25000 |
| Cash | 50,000 | |||
| Total | 100,000 |
DanielXX's avatar
DanielXX is a 30-something investor who is well-known in certain online investing forums as well as for his blog, where his writings on investing reflect depth of thought and analysis.
DanielXX says:
CH Offshore: This is the most prudent among the offshore marine stocks which is a good thing in the current environment. I still like deepwater offshore; the current indications are that rig capacity is still tight in this segment, which suggests further expansion is possible.
SMB United: This is more like a dividend stock. It has a track record of still making good profits in lean years for the construction industry. Good balance sheet. Outlook-wise, it is a lagging beneficiary of construction boom and should have pretty good orders locked-in for next 1-2 years. Potential wildcard upside exposure in deregulation of local power industry through subsidiary EDMI which makes meters.
*****
| Stock | Number of shares | Purchase price ($) | Oct 31 closing price ($) | Value of holding ($) |
| Cash | 100,000 | |||
| Total | 100,000 |
Kenny's avatar
Kenny is a young investor whose investing approach involves studying company fundamentals with a mid-to-long term horizon in mind. He advocates risk-taking with caution because he knows we can’t avoid it. Enjoys his daily Business Times, especially so with an americano expresso.
Kenny says:
Am adopting a safe approach now, waiting for some companies that I'm eyeing to release their results for more visibility on their fundamentals, such as balance sheets. I'm also looking at the macro issues affecting the economy, specifically the rate cuts and the US presidential election on Wednesday.
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