ShareJunction - Stock Forum Messages %%%:

by Dr Michael Leong on Friday, July 22, 2011 at 11:13am

I have a special affinity for low absolute value stocks. These are stocks that trade in " micro pennies" .... in Singapore terms, I categorise these as stocks trading below 10cts. Though the absolute value of a stock does not dictate its market capitalisation, the behaviour for such stocks is that they tend to go up quicker ... and of course, go down quicker as well!

Yes, these are high risk stocks given the large fluctuations possible. But, even as a fundamental investor, I do enjoy the adrenaline rush that such stocks bring to my portfolio. However, I am very selective on such stocks as many of these remain micro penny stocks because they truly lack a sound business and many have very flaky financials.

New Wave is interesting to me as I think the management is doing all the right things. In Dec 2009, when there was a 5 for 2 rights issue, the main shareholder Tan Ming fully subscribed for these shares at 1ct each. In Sep 2010, Tan Ming then bought a further 100 mil shares at 1.1ct, a further 50 mil in Mar 2011 and 18 mil more in June 2011. He also gave away 3.1 mil of his shares... I think to incent his own staff and directors.

Recently, the other directors also started buying shares in the company. Tan Boon Tan bought 9 mil, Chea Chia Chan bought 10 mil and Chan Teck Wah bought 12 mil. The recently appointed CEO, Ong Kian Soon has 31.18 mil shares. Hence, all the key directors have stakes in the company.

I am someone who rather look at the actions of directors and substantial shareholders than to go and hear a presentation or have a meeting with management. I rather see what they do with their own money and if they put their own money into the company that they run, I feel that they are more likely to act in the interests of shareholders. No, I have not met any of them and have no intention of doing so. As I have written in my book, CEOs are the best salesmen for the company and if you give any of them enough time, they will surely convince you to invest in their companies!

The downside of this company is that there appears to be 2 large sellers who together may still have around 89 mil shares. These are the 2 folks who sold their profitable MSC Group in early 2010 in exchange for shares. I think these will continue to exert quite a bit of downward pressure on the share price and hence, I expect the share price to continue to be under pressure in the short to medium term.

From the financials standpoint, this company appears to be pretty sound. It has net cash of around $10.7 mil and investment and freehold properties of around $3.3 mil. At 0.9ct, its market capitalisation is around $13 mil... close to its cash and property values.... its businesses are for free.

For its full year ended Mar 2011, it produced revenues of $22.3 mil and profits of $975K (compared to $16.6 mil of revenues and profits of $301K in FY 2010). Its main businesses are in aluminium products distribution and components distribution. I think its profits mainly come from the aluminium division. It does not give any dividends.

My opinion of this company is naturally biased as I have been collecting these shares especially in the last few months. In the latest annual report, I was listed as the 6th largest shareholder.

I am sharing this as an example of what it takes to be a fundamental investor. You have to believe in your own judgement and as well as that, you must understand the laws of supply and demand and how it can affect your stocks. This is why I started this article not from the fundamental perspective of the stock, but on how I see its supply and demand equation. As a fundamental investor, I do not fight supply. If there is a lot of supply, I will position myself accordingly.

The key thing in investing is not to believe anyone and follow blindly but to do your own research and most importantly, believe in yourself and your own analysis. Read my personal notes above and then check these against the annual reports and company announcements. Try to understand how an investor like me thinks and then, formulate your own investment strategy. If you are still unsure after doing your own research, it is best to ask your broker or financial adviser as I am not a financial adviser and am only sharing my own personal investing experience here.

This information is provided for education and informational purposes only. You should consult a competent financial advisor before making any financial or investment decisions.

SUNDAY, OCTOBER 7, 2012

New Wave