Tuesday, August 17, 2010

How To Spot A Good Trade

A good trade has to do with inherent value and timing. It has little to do with ongoing business or recurring earnings attractiveness. If you are Buffett you can buy this stock and hold for 1 or 2 years before getting full value as you know something is bound to happen to the stock during that period which will unlock value.

Otherwise, if you are patient and can be diligent in noticing percentage change in volume and share price, you could get in for a good trade.

If you look at the movements in Gopeng, you can see some abnormal activity. You probably have to be very "inside" to get any shares below 90 sen, or you would have had to be holding them for months or even years.







The sustained price movement and the gradual build up in volume, with minimal contra selling or big blocks of selling tells me this is a corporate exercise kind of stock.

Gopeng is in plantations but also a share of business in Perak Hanjoong Simen. They generally make RM2m-3m net each quarter closed eyes. The last quarter saw net profit being bumped up by a sale of land by Perak Hanjoong Simen of which Gopeng got nearly RM7m extra profit.

Gopeng's assets is there but its revenue and profits are pathetic, but they will survive. Their real value is in their overall NAV, which is attractive to many big investors or listed companies. They have about 179m shares paid up and at RM1.00 its market cap is RM179m.

Their total assets is RM303.7m. Total liabilities is RM32m. Net = RM271m / 179m = RM1.51.

I wouldn't even touch Gopeng as a business but as a company to be sold off, its very interesting. Any kind of offer will have to be close to RM1.50 the minimum. If you were controlling Gopeng, it looks best to sell the company to the highest bidder because judging from their track record the current owners have no interest to grow the business.

Hence the perk up in volume and share price looks very decent, should be good for a trade.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

7 comments:

Bushido said...

In Sept 2009 you wrote:

I would not be surprised if Genting Singapore rides the wave to S$1.50, and even that is not terribly expensive, really.

Good trade indeed.

Gamelion said...

Net asset value (NAV)is totally zero value & nothing to associate with the movement of the stock price unless you really wanted to totally liquidate that company !

Buyer said...

Hi Dali,

If you don't mind, pls help to explain more the following

"It has little to do with ongoing business or recurring earnings attractiveness." Just wonder that why recurring earnings IS NOT important??

(total assets-liabilities)/ Market cap = RM1.5
what RM1.5 here means?

NAV/NTA is guideline for the securities inherent value??

Salvatore_Dali said...

buyer,

inherent value in this case means NTA or NAV ... both are just comfort figures, it only means something when controlling ownership changes or when the company is sold off

inherent value in other cases can mean business model, competitive advantage, barriers to entry, first move advantage, size, pricing power

i said normally i would not even buy gopeng because its ongoing biz is so dull n unexciting ...

Buyer said...

thank you!! Gu Shan!!

WL said...

Hi Dali,

Regarding your posting on "How to spot a good trade".
Based on your calculation on the proposed min price of RM1.5 should Gopeng is to be sold..

I used the same formula to try to compute the same proposed price for MISC based on their latest balance sheet on Bursa..
Total Asset - RM41,060.2million
Total Equity - RM23,662.0million
Total Liabilities - RM17,024.0 million
Outstanding Shares - 3,719,827,586
Price Per share - RM8.86
IT went "haywire"!!

Appreciate if you could just do a simple valuation and show it on your blog. Thanks a lot

Jakarta said...

Gopeng announced the disposal at RM200 mil, below its book value. What would be the price reaction?