commodity Archives

76 Singapore Commodity and Malaysia Plantation Stocks (天时地利)

Posted on March 31, 2022 Written by Dr Tee (Ein55)

Supply chain disruptions during pandemic has resulted in surging commodity prices (eg. palm oil and other agricultural products, crude oil, metals, etc). The situation becomes worst with recent Russia-Ukraine war, global inflations would be higher in near term, pushing commodity market to even higher optimism.

Instead of worrying about uncertain markets, a smart investor may consider strong commodity giant stocks with protection by rising commodity sector business, a natural way to hedge against high inflation with interest rate hike.

In this article, you will learn from Dr Tee on 76 Singapore Commodity and Malaysia Plantation Stocks to profit in current stock market, some may be considered for longer term investing and / or short term trading with COVID-19 recovery stock rally and high inflations. Bonus for readers who could read every word of the entire article, learning unique strategy to position in 6 Singapore and Malaysia commodity / plantation (mainly palm oil) giant stocks for both passive incomes (dividend) and capital gains with potential share price appreciation. Both Ein55 Optimism levels and intrinsic values will be shared for each giant stock:

3 Singapore Giant Commodity Stocks:

– Wilmar International (SGX: F34), Golden Agri Resources (SGX: E5H), First Resources (SGX: EB5)

3 Malaysia Giant Plantation Stocks:

– United Plantations (Bursa: 2089), Genting Plantations (Bursa: 2291), Kim Loong Resources (Bursa: 5027)

These stocks have plantations and processing factories mainly on palm oil and some also on other agricultural products (eg. sugar, wheat, seeds, etc). Singapore and Malaysia has the most number of palm oil giant stocks in the world with plantations mainly based in Malaysia and Indonesia.

The best time to invest in 35 Singapore commodity stocks and 41 Malaysia plantation stocks (total 76 stocks) is always during global stock crisis (eg. Year 2020-2021 during pandemic, 2008—2009 during subprime crisis, etc), not only able to maximize the dividend yield (due to lower entry share price), also could have higher potential of capital gains (when market cycle moves from fear in low optimism to greed in high optimism). Commodity stock investing is not based on stock strategy (Buy Low Sell High) alone, may be integrated with dividend investing, growth investing, swing trading, momentum trading, cyclic investing, defensive investing and other Ein55 strategies.

More importantly, commodity stock investing has to be integrated with commodity market itself, eg, riding the uptrend of commodity prices. Since palm oil prices are at very high Ein55 Optimism over 75% (very bullish), most palm oil giant stocks are more suitable for short term to medium term trading, while a few could still be considered for longer term investing. So, alignment with short term prices by Technical Analysis is helpful (eg. ensure higher high and high low in share prices).

There are 76 Singapore commodity stocks and Malaysia plantation stocks (not all are giant stocks with Dr Tee criteria), based on the last price traded (30 Mar 2022), sorted by 3 key Fundamental Criteria:
1) ROE (a criteria for growth stocks, eg. ROE > 5%),
2) Dividend Yield, DY (a criteria for dividend stocks, eg. DY > 3%),
3) Price-to-Book (PB) ratio, Price/NAV (a criteria for undervalue stocks, eg. PB < 1).

From the table sorted below, 50% (38/76 stocks) are undervalue (Price to Book ratio, PB < 1), mainly due to COVID-19 stock crisis, affecting commodity business with bearish share prices a few years ago but trend is reversed currently with bullish commodity market. There are 64% (49/76 stocks) have growing businesses (over 5% ROE, Return on Equity) with rising commodity prices while only 18% (14/76 stocks) were making losses during pandemic in Year 2021. There are nearly 50% (37/76 stocks) were paying dividend but only 20 stocks (26%) having dividend yield over 3%, potential for dividend investing (higher dividend yield may not be better).

No	76 SG+MY Commodity Stocks	ROE (%)	PB	DY (%)
1	Asia Enterprises (SGX: A55)	3.9	0.6	5.1
2	AsiaPhos (SGX: 5WV)	-8332.5	11.3	–
3	Bumitama Agri (SGX: P8Z)	16.7	1.4	3.2
4	China Mining (SGX: BHD)	27.3	0.5	–
5	CNMC Goldmine (SGX: 5TP)	4.2	1.7	0.9
6	Cosmo Steel (SGX: B9S)	2.9	0.6	3.2
7	Don Agro (SGX: GRQ)	15.3	0.6	3.2
8	First Resources (SGX: EB5)	13.5	2.0	3.1
9	Fortress Minerals (SGX: OAJ)	37.7	3.0	2.2
10	Geo Energy Resources (SGX: RE4)	51.2	1.4	19.0
11	Global Palm Resources (SGX: BLW)	9.3	0.7	7.9
12	Golden Agri-Resources (SGX: E5H)	10.2	0.6	5.3
13	Golden Energy (SGX: AUE)	23.5	1.8	–
14	Halcyon Agri (SGX: 5VJ)	0.6	0.6	–
15	HG Metal (SGX: BTG)	10.9	0.5	9.7
16	Indofood Agri (SGX: 5JS)	6.5	0.5	2.0
17	Intraco (SGX: I06)	-1.6	0.7	–
18	Jawala (SGX: 1J7)	14.2	1.1	2.7
19	Kencana Agri (SGX: BNE)	54.6	1.5	–
20	Mewah Intl (SGX: MV4)	11.8	0.7	2.5
21	MSC (SGX: NPW)	20.3	3.1	1.6
22	Nam Lee Metal (SGX: G0I)	9.9	0.6	4.2
23	NSL (SGX: N02)	1.0	0.7	5.6
24	Resources Global (SGX: QSD)	40.0	1.0	2.5
25	Samko Timber (SGX: E6R)	-23.9	12.2	–
26	Shen Yao (SGX: A78)	-42.9	1.4	–
27	Soon Lian (SGX: 5MD)	17.0	0.5	1.7
28	Southern Alliance (SGX: QNS)	40.4	2.9	2.3
29	Sri Trang Agro (SGX: NC2)	34.0	0.9	15.8
30	Union Gas (SGX: 1F2)	26.6	4.3	2.4
31	Union Steel (SGX: BLA)	12.4	0.4	6.0
32	USP Group (SGX: BRS)	-5.7	0.2	–
33	VCPlus (SGX: 43E)	-44.2	15.0	–
34	Wilmar International (SGX: F34)	9.5	1.1	3.3
35	Wilton Resources (SGX: 5F7)	6.2	1.9	–
36	AASIA (Bursa: 7054)	-3.4	0.4	–
37	BKAWAN (Bursa: 1899)	18.1	1.6	4.2
38	BLDPLNT (Bursa: 5069)	10.3	1.3	0.3
39	BPLANT (Bursa: 5254)	8.9	0.8	–
40	CEPAT (Bursa: 8982)	13.4	0.8	–
41	CHINTEK (Bursa: 1929)	9.3	1.0	3.8
42	DUTALND (Bursa: 3948)	1.1	0.2	2.9
43	FAREAST (Bursa: 5029)	13.1	1.7	–
44	FGV (Bursa: 5222)	21.5	1.3	–
45	Genting Plantations (GENP) (Bursa: 2291)	8.4	1.5	–
46	GLBHD (Bursa: 7382)	-4.9	0.3	–
47	GOPENG (Bursa: 2135)	-0.9	0.6	–
48	HARNLEN (Bursa: 7501)	-7.1	0.6	–
49	HSPLANT (Bursa: 5138)	11.9	1.1	6.7
50	INCKEN (Bursa: 2607)	-2.0	0.3	–
51	INNO (Bursa: 6262)	26.8	2.6	–
52	IOICORP (Bursa: 1961)	13.9	2.5	2.6
53	JTIASA (Bursa: 4383)	2.8	0.8	–
54	Kim Loong Resources (KMLOONG) (Bursa: 5027)	12.7	2.3	3.5
55	KLK (Bursa: 2445)	19.0	2.2	4.0
56	KLUANG (Bursa: 2453)	4.6	0.4	0.8
57	MALPAC (Bursa: 4936)	4.3	0.5	–
58	MATANG (Bursa: 0189)	1.8	0.8	2.2
59	MHC (Bursa: 5026)	14.7	0.8	–
60	NPC (Bursa: 5047)	2.1	0.4	–
61	NSOP (Bursa: 2038)	4.3	0.5	–
62	PINEPAC (Bursa: 1902)	-5.0	0.3	–
63	PLS (Bursa: 9695)	5.1	1.4	–
64	RSAWIT (Bursa: 5113)	-1.9	1.3	–
65	RVIEW (Bursa: 2542)	6.0	0.6	–
66	SBAGAN (Bursa: 2569)	7.2	0.3	2.2
67	SHCHAN (Bursa: 4316)	38.0	0.5	–
68	SIMEPLT (Bursa: 5285)	14.9	2.3	–
69	SOP (Bursa: 5126)	18.2	1.1	–
70	SWKPLNT (Bursa: 5135)	19.0	1.1	–
71	TAANN (Bursa: 5012)	17.8	1.4	–
72	TDM (Bursa: 2054)	-4.4	0.7	–
73	THPLANT (Bursa: 5112)	10.8	1.2	–
74	TSH (Bursa: 9059)	10.3	1.4	–
75	UMCCA (Bursa: 2593)	1.0	0.8	1.8
76	United Plantations (UTDPLT) (Bursa: 2089)	19.4	2.3	6.3

However, not all the 76 Singapore Commodity and Malaysia Plantation stocks listed are giant stocks. A growing business in the past may not be sustainable during COVID-19 period and an undervalue stock may remain lagging in share prices for many years, could end up as a crisis stock. Fundamental Analysis alone is not sufficient, a low PB or low PE or high dividend yield stock may be a value trap as this may be the result of lower share price with weakening businesses. Therefore, deeper analysis is required with LOFTP (Level, Optimism, Fundamental, Technical, Personal Analysis) Strategies.

Let’s learn these 6 commodity and plantation giant stocks (mainly related to palm oil) in Singapore and Malaysia, understanding the business nature, investment clock and unique strategy.

1) Singapore Commodity Giant Stock – Wilmar International (SGX: F34)

Among the 6 giant stocks studied, Wilmar has the largest market cap (about 10 times more relative to others), also the 6^th largest stock in 30 STI component stocks. A giant is not defined by the size, even small cap stock could be a giant stock based on Dr Tee criteria.

The IPO of Wilmar subsidiaries in China and India help Wilmar to grow its market value further. Major shareholder is PPB Group (Bursa: 4065), Perlis Plantations Berhad, controlled by Kuok Family (led by Robert Kuok, the richest person in Malaysia). This is additional bonus with such a strong sponsor.

Wilmar has stronger business, mainly supported by higher commodity prices (eg. palm oil and sugar, etc). However, due to too bullish palm oil prices, when high inflation is tamed in future, it may affect its cyclic stock prices. Therefore, currently Wilmar (as well as other 5 giant stocks studied) is more suitable for short to medium term trading until the commodity market falling down from high optimism one day (likely triggered by another Black Swan).

Wilmar is still at moderate low Ein55 Optimism (<50%) but recovering well from low in pandemic, aiming for Ein55 intrinsic value of about $6/share (about 30% potential upside in medium term). The stock is well balanced, suitable for growth investing (Buy & Hold), cyclic investing (Buy Low Sell High) or even dividend investing (about 3% dividend yield).

2) Singapore Commodity Giant Stock – Golden Agri Resources (SGX: E5H)

Golden Agri Resources is a very cyclic stock, share prices has been bearish over the past 10 years (2010-2020, suitable for shorting then), incurring big loss for long term investors. The business is also more cyclic in nature, currently having upside potential with rising palm oil prces.

Crisis (eg. lower share prices) is an opportunity only for a giant stock. Despite Golden Agri does not have very strong business, its foundation is good, able to recover in share prices after 10 years of “winter” for business and stock prices.

Golden Agri is still at moderate low Ein55 Optimism (about 30%) but recovering well from low in pandemic, aiming for Ein55 intrinsic value of about $0.60/share (about 2X potential upside but at the price of relatively higher risk). The stock is more suitable for cyclic investing (Buy Low Sell High), aligning with palm oil optimism until the bull market has ended.

3) Singapore Commodity Giant Stock – First Resources (SGX: EB5)

First Resources is relatively smaller stock but it is also a giant stock, more suitable for shorter term trading as Ein55 Optimism is at fair price (about 50%). The share price is recovering well from low in pandemic, aiming for short term trading.

The stock is more suitable for swing trading (Buy Low Sell High in weeks or months) or momentum trading (Buy High Sell Higher with price breakout), aligning with palm oil optimism until the bull market has ended. Alignment with short term prices by Technical Analysis is helpful (eg. ensure higher high and high low in share prices).

4) Malaysia Plantation Giant Stock – United Plantations (Bursa: 2089)

United Plantations is a rare giant stock suitable for long term investing (having over 100 years of history with Danish management for several generations in Malaysia). The parent company (UIE) is listed in Denmark, the close connection with Europe market also helps in its business positioning, especially with tighter Europe regulations for palm oil products.

United Plantations has relatively stronger and more defensive business than other peers in the same sector. Therefore, it is one of the few giant commodity stocks which may be considered for long term investing, in addition to short term trading, despite operating under a cyclic commodity market.

United Plantations is at low Ein55 Optimism (<25%) but recovering steadily from low in pandemic, aiming for Ein55 intrinsic value of over $20/share (about 40% potential upside). The stock is more suitable for mudium to long term investing (Buy Low Sell High), entry with consideration of short term trading is helpful to avoid price correction.

5) Malaysia Plantation Giant Stock – Genting Plantations (Bursa: 2291)

Genting Plantation is under Genting Berhad (Bursa: 3182), a giant group under severe crisis during pandemic (casino, cruise, hotel, plantations, etc). However, the strong foundation of parent company has helped to support subsidiaries (except for Genting Hong Kong with cruise business).

As a result, Genting Plantations is suitable for Crisis Investing to Buy Low Sell High, leveraging on very low prices with calculated risks. This is comparable with stock investing in Golden Agri, higher risk for higher gains (Genting Plantations is stronger than Golden Agri for relative business comparison).

Genting Plantations is still at low Ein55 Optimism (<25%) but recovering well from low in pandemic, aiming for Ein55 intrinsic value of about $17/share (about 2X potential upside but at the price of relatively higher risk). The stock is more suitable for cyclic investing (Buy Low Sell High), aligning with palm oil optimism until the bull market has ended.

6) Malaysia Plantation Giant Stock – Kim Loong Resources (Bursa: 5027)

Kim Loong Resources has strong business performance, comparable with United Plantations. It is smaller in size but a strong giant stock internally. However, due to relatively higher optimism than United Plantations, Kim Loong is more suitable for short trading or medium term investing.

Kim Loong Resources is at moderate high Ein55 Optimism (>50%, exceeding Ein55 intrinsic value). The share price is recovering well from low in pandemic, aiming for short term trading.

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There are over 2000 giant stocks in the world based on Dr Tee criteria, choice of 10 Dream Team giant stocks have to align with one’s unique personality, eg. for shorter term trading (eg. momentum or swing trading) or longer term investing (cyclic investing, undervalue investing or growth investing). Readers should not just “copy and paste” any stock (What to Buy, When to Buy/Sell) as successful action taking requires deeper consideration (LOFTP strategies – Level / Optimism / Fundamental / Technical / Personal Analysis) which you could learn further from Dr Tee Free 4-hr Webinar.

Drop by Dr Tee free 4hr webinar (learning at comfort of home with Zoom) to learn how to position in global giant stocks during COVID-19 stock crisis with 10 unique stock investing strategies, knowing What to Buy, When to Buy/Sell.

Zoom will be started 30 min before event, bonus talk (Q&A on any investment topics from readers) for early birds. There are many topics we will cover in this 4hr webinar, Dr Tee can have more time for Q&A if you could stay later after the webinar, you could ask on any global and local stocks including but not limited to 30 STI component stocks:

Ascendas Reit (SGX: A17U), CapitaLand (SGX: C31), CapitaLand Integrated Commercial Trust (SGX: C38U), City Development (SGX: C09), ComfortDelGro (SGX: C52), Dairy Farm International (SGX: D01), DBS Bank (SGX: D05), Frasers Logistics & Commercial Trust (SGX: BUOU), Genting Singapore (SGX: G13), Hongkong Land (SGX: H78), Jardine Cycle & Carriage (SGX: C07), Jardine Matheson Holdings JMH (SGX: J36), Keppel Corp (SGX: BN4), Keppel DC Reit (SGX: AJBU), Mapletree Commercial Trust (SGX: N2IU), Mapletree Industrial Trust (SGX: ME8U), Mapletree Logistics Trust (SGX: M44U), OCBC Bank (SGX: O39), SATS (SGX: S58), Sembcorp Industries (SGX: U96), Singapore Airlines (SGX: C6L), Singapore Exchange (SGX: S68), Singtel (SGX: Z74), ST Engineering (SGX: S63), Thai Beverage (SGX: Y92), UOB Bank (SGX: U11), UOL (SGX: U14), Venture Corporation (SGX: V03), Wilmar International (SGX: F34), YZJ Shipbldg SGD (SGX: BS6).

Dr Tee will cover over 20 case studies, Singapore giant stocks, eg. CapitaLand Integrated Commercial Trust (SGX: C38U), Singapore Exchange (SGX: S68), Keppel Corp (SGX: BN4), Top Glove (SGX: BVA), Jardine Matheson Holdings JMH (SGX: J36), Vicom (SGX: WJP) and many others, Malaysia giant stocks, Hong Kong giant stocks and US giant stocks, both long term investing and short term trading.

There are limited tickets left for this 4hr free webinar, please ensure 100% you could join when register: www.ein55.com

View quick preview video below, Dr Tee will introduce 10 key stock investment strategies (股票投资十招) to be learned in 4hr free stock webinar:

Register Here (Dr Tee Free 4hr Stock Webinar): www.ein55.com

Filed Under: Fundamental Analysis, Market Cycle Investing, Market Optimism, Stock Market Tagged: commodity, crisis stock investing, Malaysia Stocks

Oil & Gas Stocks (Singapore, US, Hong Kong) with 100% Profit (火上加油)

Posted on June 14, 2021 Written by Dr Tee (Ein55)

Crude oil crashed to negative price 1 year ago, how many of you dare to buy oil or related stocks when others were fearful? Everyone knows “Buy Low Sell High” is the secret to make money in investment but in practice, not many people able to pluck the low-hanging fruits.

In this article, you will learn from Dr Tee on Giant Oil & Stocks of 3 Countries (over 100% profits in the past 1 year) for longer term investing and / or short term trading with COVID-19 recovery stock rally. Bonus for readers who could read every word of the entire article, learning unique strategy to position in each giant stocks, including Ein55 Optimism level and Ein55 Intrinsic Value.

1) US Giant Oil & Gas Funds

Energy Sector SPDR Fund (NYSE ARCA: XLE) / US Oil Fund (NYSE ARCA: USO)

– 100% capital gains after oil price surged over 3 times in last 1 year

2) Singapore Giant Oil & Gas Stock: Union Gas Holdings (SGX: 1F2)

– over 100% profit since sharing in 5 months after sharing with Ein55 graduates & public webinars

3) Hong Kong / China Giant Oil & Gas Stock: Kunlun Energy Company (HKEX: 135)

– over 30% special dividend yield and over 20% capital gains since Ex-Dividend on 31 May 2021

Crude oil is a major commodity, therefore a giant by default (similar to property market which is also a form of commodity) as it is not possible for the world to live without energy supply. Crude oil experienced bearish market due to natural market cycle since Year 2014 when WTI crude oil prices fell from high optimism of over US$100/barrel to low optimism of US$20/barrel, even crashed to negative price (only for 1 day due to abnormal oil futures contract, mostly from USO oil fund) during pandemic in Apr 2020.

For cyclic giant such as crude oil and related Oil & Gas stocks, the entire market was reborn after the worst time of negative oil price. OPEC and non-OPEC oil producer countries learn to collaborate to stabilize the oil price during this crisis of century. Since then, oil price and related stocks start to rebound from low Ein55 Optimism but mainly limited to long term value investors. During recovery of pandemic over the past 1 year with more energy consumption (industries, transportation, household, etc), oil price and related stocks have gone up steadily, even approaching fair prices with mid Ein55 Optimism. With support of more short term traders who join the game recently (火上加油), oil and gas stocks are enjoying strong uptrend momentum in prices.

A giant stock may not need to be big in size, even a small company could be a giant stock. There are hundreds of Oil & Gas stocks globally but some could be junk stocks, Buy Low may become lower in share prices with declining businesses. Let’s study Global Giant Oil & Gas Stocks (following Dr Tee criteria), some are recovering from lower optimism in 3 global stock exchanges interested by readers:

1) US Giant Oil & Gas Funds

Energy Sector SPDR Fund (NYSE ARCA: XLE) / US Oil Fund (NYSE ARCA: USO)

There is no direct way of investing in crude oil market, some investors may consider either investing through oil futures fund, eg. United States Oil ETF (NYSE ACRA: USO) or Energy Sector SPDR Fund (NYSE ARCA: XLE).

USO oil fund applies rollover of WTI oil futures contracts to invest in oil indirectly. Due to Contango in most of the time over the past few years, USO has underperformed actual oil price due to the additional loss (reducing overall capital gains) when rollover to future contracts with higher prices. However, current oil futures is under Backwardation, rollover of monthly futures contracts with lower prices would give extra capital gains, therefore higher probability of winning for trading crude oil with USO.

During pandemic in Q2 2020, WTI fell to $20/barrel, an investor may apply average down strategy (see earlier educational article by Dr Tee during the worst time of pandemic: https://www.ein55.com/2020/03/10-bullets-of-crude-oil-uso-etf-investing/), even if following oil prices to $0 (excluding negative price), average entry price is only $10/barrel (average of $20 + $15 + $10 + $5 + $0), now is already over $70/barrel, over 7 times.

Even if an investor invested in WTI oil price at the highest price of low optimism level, $20/barrel, the corresponding USO fund price was about $33/unit (after 8 to 1 stock consolidation), current price is about $48/unit (with WTI price of about $70/barrel), nearly 50% capital gains (not comparable with actual 3X oil price gains from $20/barrel to $70/barrel, mainly due to USO huge loss during negative oil price and Contango period).

If reading most blogs or analysts reports during pandemic in Q2/2020 after negative oil price, most would write with hindsight that USO was in trouble, may even go bankrupt. Interest in Oil & Gas stocks was very low as well with so many bad news on crude oil market in the past. In fact, this was a perfect time for oil & gas giant stock investing, especially for a few with strong business, supported by dividend yield over 10% (only known to Ein55 graduates), possible for contrarian investing with average down strategy to Buy Low, collecting quarterly dividend while waiting for the light at the end of tunnel for stock recovery to Sell High one day (currently is only a fair price for crude oil and related giant stocks).

After 1 year later, for investors who could take action with calculated risk on USO (despite this is not perfect for oil investing) or Oil & Gas giant stocks, they are rewarded now. For those who are still thinking or analyzing today (when others are not fearful anymore on oil market), the upside is limited, unless following short term momentum trading.

An alternative to oil futures fund or giant stock investing is to invest in a portfolio of large cap stocks (may not be giant stocks), diversifying the unsystematic business risks. SPDR fund for Energy Sector Index (XLE) consists of big oil & gas companies such as Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX), Phillips 66 (NYSE: PSX), etc. These oil & gas stocks are too big to fail (although may not be true all the time but unlikely for all to go bankrupt together), having more reserves to last through the winter time with low Ein55 Optimism oil prices. XLE fund portfolio is supported by integrated oil businesses (upstream oil exploration, midstream oil delivery and storage, downstream oil refinery and processing).

When WTI oil price was $20/barrel, assuming an investor invested in XLE (was about $28/unit), potential capital gains so far is 100%, 2X with XLE at about $55/unit. XLE could be a better option than USO for longer term investing as it is supported indirectly by big Oil & Gas companies (may not be giant stocks, following Dr Tee criteria) with interests affected by oil prices. USO is fine for shorter term trading unless during Backwardation period with additional capital gains.

Current Brent or WTI crude oil price of $70+/barrel is still below the Ein55 Intrinsic Value of about $80+/barrel. When there is market greed (common for cyclic commodity market), there is further potential to go beyond $100+/barrel, especially with weaker US Dollar and strong global economy during pandemic recovery after global vaccination. If so, a smart investor would know when to exit, taking profits at high Ein55 Optimism, waiting for the next market cycle to profit from crude oil and related stocks again.

For conservative investors, it is fine to exit earlier with fair price (after Buy Low last time), converting Oil & Gas stocks to cash (as future investment opportunity fund) or Change Horse to other more defensive dividend giant stocks in the phase 2 (greedy market cycle) of stock market. Cash is King when used at the right time (usually during bearish market with low Ein55 Optimism such as Year 2020 pandemic), an investor has to know when to convert between stocks and cash.

2) Singapore Giant Oil & Gas Stock: Union Gas Holdings (SGX: 1F2)

There are only about 40 Oil & Gas giant stocks globally, excluding marginal giant stocks with familiar names such as Exxon Mobil (NYSE: XOM) and Keppel Corp (SGX: BN4). In fact, many Oil & Gas giant stocks are small and medium cap stocks, businesses have been growing steadily even with bearish WTI crude oil prices over the past 6 years, falling from $100/barrel to $20/barrel to negative prices. Value is what you get (barrel of crude oil) and price is what you pay, therefore abnormal negative price (seller has to pay to buyer) could not last over 1 day. It can be risky to invest in non-giant oil & gas stocks, especially in Singapore, Buy Low may get lower or even potentially going bankrupt in business, losing everything.

Union Gas is a young Oil & Gas Giant stock in Singapore (4 years after IPO) but having over 40 years of business in LPG (Liquefied Petroleum Gas), business performance has been excellent before and after IPO till now, potential to expand from Singapore to other Southeast Asian countries. Major shareholder (Teo family) has over 70% ownership, paying steady dividend to themselves and also to other shareholders. However, Union Gas share price was stagnant since IPO until last 1 year of pandemic (crisis as opportunity due to higher demand for LPG when people staying longer at home), starting to break above low optimism level of $0.30/share, going up steadily.

When Dr Tee assigned this homework to Ein55 Graduates in Jan 2021, main strategy was positioning for trading with entry share price at $0.53/share or above after each intermediate price breakout. The stock has gone up a few rounds over the past 5 months, trend-following trading may be applied, especially for giant stock at higher optimism with support by growing business in a promising sector with strong global economy. Based on current price of $1.10 on 14 June 2021 (another 10% rally today), it has doubled its share price with 100% profits.

Union Gas is both a growth stock for long term investing and momentum stock for short term trading. Dr Tee has used the same stock as case study in free 4hr monthly webinars (www.ein55.com) over the past few months, even a trader may enter halfway at $0.80+, potential gains so far is already over 30%. For shorter term trading of giant stocks, it is crucial to include S.E.T. (Stop Loss / Entry / Target Prices) in trading plan.

Union Gas is one of over 200 stocks in Singapore Catalist Market, mostly are penny stocks (many have weak business fundamentals), only 5 stocks have over $1/share price. However, some strong price penny stocks in the past may not be sustainable in future. For example, both UG Healthcare Corporation (SGX: 8K7) and Medtecs International Corporation (SGX: 546) from Catalist market were over $1/share, now back to penny stock (below $1/share) after the market greed has subsided for pandemic beneficiary stocks. Those speculators who chase after the high prices would suffer huge loss when the momentum is stopped one day.

In the last rally of global stock market, usually penny stocks including many junk stocks would go to higher optimism level, speculators may buy up (especially when stock prices rising over 2-10 times) without consideration of businesses, ignorant of price vs value. Sadly to say, this group of speculators (mainly applying tips strategy in action taking) may make some pocket money with over small gains of 10-20% but eventually may need to pay back over big losses of 50-90% to Mr Market when show hands at wrong time with more capitals in future trades of junk stocks with consideration of prices alone (happened several times before, including penny stock crisis many years ago with Blumont (SGX: A33), LionGold (SGX: A78), etc.

3) Hong Kong / China Giant Oil & Gas Stock: Kunlun Energy Company (HKEX: 135)

Kunlun Energy was a Temasek stock who was lucky to sell the stocks many years ago while the stock prices falling from peak of over $16/share in Year 2013 to $4/share during pandemic 2020. In fact, Kunlun Energy has been a little giant stock under giant parent company, PetroChina (HKEX: 857), No 2 largest Oil & Gas stock in the world. Kunlun is a small cap company with integrated LNG (Liquefied Natural Gas) businesses.

Kunlun Energy has strong business fundamental but share prices have been affected by bearish crude oil and natural gas prices. Natural gas usually is a byproduct of crude oil drilling, therefore both Oil & Gas stocks are strongly correlated in both businesses and share prices within similar sector, despite the applications are different. Even the future world may not need crude oil one day, becoming 100% green energy, still needs natural gas to produce electricity.

So, popularity of electric vehicles would not eliminate traditional energy sources of crude oil and natural gas. Buying technology giant stocks such as Tesla (NASDAQ: TSLA) is mainly investing in future (pretty picture with higher uncertainty), while buying Oil & Gas giant stocks, are based on proven current business (low-hanging fruits). An investor may make decision with known facts (which sometimes may last for decades, no need to predict into future which may not come within one’s lifetime.

Over the last 1 year of pandemic, Kunlun Energy recovers in share prices from $4/share to over $9/share with over 100% capital gains. Over the past few months, Dr Tee has shared Kunlun Energy with both Ein55 Graduates and monthly free 4hr public webinars (www.ein55.com), those who take actions recently could profit in both one-time special dividend yield of 32% (mainly due to disposal of an asset) and over 20% capital gains since Ex-Dividend on 31 May 2021 till now.

Kunlun Energy is still a momentum stock for trading, certain trading platform may not adjust for 32% dividend yield on 31 May 2021, then investor has to take note of the 30% price ($9 to $6) differences. It may also be considered for longer term investing (current price is still near to low Ein55 optimism level) with Ein55 Intrinsic Value nearly $18. However, this stock is highly cyclical, may not be suitable for low risk tolerance investor (even Temasek sold it in the last bearish cycle), despite business fundamental is excellent with strong sponsor (PetroChina), share price could fluctuate more than indices.

Volatility could be friend for traders while low optimism (price lower than value) could be friend for investors. So, an investor has to confirm PA (Personal Analysis), aligning the investing strategies with own unique personality (eg. short term trading or long term investing). PA is an anchor point to avoid drifting of position due to emotional stock market. “Copy and Paste” of other people’s best stocks or successes may not work without internalization.

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Due to sector rotation with weakening of USD, commodity market is recovering steadily from low optimism in last few years, now approaching mid optimism of fair value, attracting potential short term traders to follow the uptrend prices of commodity stocks (oil & gas, agricultural, precious metals, etc).

Value investor has option to enter these lower Ein55 Optimism stocks at much lower prices (Buy Low Sell High) with contrarian investing (supporting by high dividend yield). Short term traders would enter at much higher prices (Buy high sell higher), following trends.

Either long term investing or short term trading could make money in stocks. A common way could not make money is simply do nothing, waiting for inflation to depreciate the cash by -2% yearly which is sure loss over long term. Cash is King only when used at the right time, not keeping forever.

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Filed Under: Commodity Market, Macroeconomy, Market Cycle Investing, Stock Market Tagged: commodity, crude oil, Hong Kong Market, oil & gas, temasek, US Stocks

4 Forces on Crude Oil Funds (四面楚歌)

Posted on April 25, 2020 Written by Dr Tee (Ein55)

Crude oil is a commodity giant, similar to gold, physical price should not drop to $0. However, it is possible for derivatives of crude oil (eg. futures contracts) to drop below zero under special condition, eg. US oil price for WTI was negative $37/barrel for May 2020 futures contract during the most fearful time in Coronavirus pandemic with the lowest energy demand due to lockdown in US and global countries.

For gold commodity, investor could buy physical gold bar (if price drops below zero) and hide under pillow or as display at home. For crude oil commodity, investors could not keep the explosive materials at home, therefore need to have storage place which would incur high cost during the pandemic period as oil storage level is near to its maximum level, may be full by mid of May 2020. Therefore, investors who buy oil, even at positive prices, may not able to store the oil unless demand is more than supply, only then there is new room for storage.

Nevertheless, oil commodity is still a giant for longer term investing. However, there is no ideal way to invest directly in oil, each option has its own pros and cons. Typical ways are through oil futures trading, oil ETF (eg. USO, UCO, BNO, etc), energy ETF (eg. XLE, VDE, etc) or major oil & gas stocks (eg. Exxon Mobil – NYSE: XOM, Chevron – NYSE: CVX, etc).

Among all options, USO oil ETF (the largest crude oil ETF fund in the world) is a compromised way for investing in short term to mid term to follow oil price but investors may need to pay for monthly holding cost due to losses in contango (reversed is holding gain during backwardation, search for past articles by Dr Tee for details). Oil & gas stocks are more suitable for long term investing (benefiting from oil price recovery indirectly through business) but investors has risk of weaker oil & gas companies may go bankrupt during oil crisis with prolonged low oil price, therefore safer to focus in giant oil & gas stocks with strong business fundamental, continue to be profitable even during last 5 years of oil crisis.

USO (WTI oil ETF) and oil commodity used to have good correlation within about 3 years (longer than that, contango will show significant difference, reducing the capital gains). The past few months of high contango (especially for May 2020 futures contract) has resulted in USO value declining significantly. If oil futures continue to drop to negative prices for June 2020 and a few more months, not only USO may have risk of going bankrupt (NAV approaching $0), even many global oil & gas companies may disappear (Hin Leong Trading of Singapore is just an example of victim).

The correlation between USO and WTI oil is used to be this way:

Oil (WTI) / USO (ratio is about $1/barrel oil = $0.21 USO)
=============
$20 / $4.20

So, when oil price drops proportionally in a gradual way within months or years (not within 1 day), USO (without high contango) may follow closely in this manner:

Oil (WTI) / USO (ratio is about $1/barrel oil = $0.21 USO)
=============
$20 / $4.20
$15 / $3.15
$10 / $2.10
$5 / $1.05
$1 / $0.21

However, oil market becomes speculative during Coronavirus pandemic, negative oil price (happened only for 1 day) becomes the victim. USO suffered great loss in that day of negative price. USO has about 20-25% risk exposures for May 2020 futures contracts, probably could still sell at low prices above $0, therefore overall losses are about 25% due to rollover to June 2020 futures contract with higher prices. USO is in a better shape than other oil fund, eg. Bank of China oil fund (Yuanyou Bao – 原油宝) which selling May 2020 futures contract at closing market price of negative $37/barrel), suffering permanent damage, risk is much higher (this fund is stopped for new investors). Despite oil prices fell to negative region, actual transaction are fewer, prices for nearby month futures contract (Jun 2020) quickly recover, now back to a more normal price of $17/barrel.

USO oil ETF is the largest oil ETF, could quickly get new investors with new funds whenever there is a new in oil prices. Even so, USO suffers major correction over the past 1 month, the new correlation (with USO contango losses) as of now is

Oil (WTI) / USO (ratio is about $1/barrel oil = $0.15 USO), new ratio based on 24 Apr 2020

=============

$17.30 / $2.57

So, for every $1/barrel oil price, it means USO has depreciated from equivalent $0.21 (before negative oil price) to $0.15 (after negative oil price), about 25% loss due to contango during that day with negative oil price (rollover from May to Jun 2020 futures contract with historical high price gap). If June 2020 happens again for negative oil price (may or may not happen again, only knows about a few weeks later), USO would suffer more losses again.

Whether USO (and other oil ETFs) may go bankrupt (NAV approaching zero) in short term or could survive and recover together with oil commodity giant in longer term, depending on these 4 market forces:

1) Coronavirus (Demand vs Supply)

How long would Coronavirus last and when US would restart economy are keys. This determines when demand > supply for oil. Now oil supply < demand during pandemic. Based on the current Coronavirus trends, there is earlier sign that US has reached intermediate peak of new daily cases but downtrend is not so clear. With 50 states of US take turn to restart the economy, there is high risk of second peak with more infection (this is reflected in Europe countries as well with restart of economy too early).

If there is no major change in policy, Coronavirus could fade away in June for US but this implies at least 2 more months of low demand for oil price. So, there is at least 2 months of winter time for low demand for oil in US and even the world (similar trends as US).

2) Oil Storage Limit (Demand = Supply)

In the near term (eg. June – July 2020 futures contracts), it is possible for negative oil prices to happen again, especially oil storage in US will reach maximum limit by mid of May 2020, market sentiments with great fear (四面楚歌) may cause abnormal negative oil prices again.

By then, new oil produced has no more storage. So, demand = supply for oil when there is no more new storage. It means most oil & gas companies would lose more money (no oil = no income), there is high expenses to shutdown the oil well. When more oil & gas companies go bankrupt or stopping production, naturally supply will be less (even demand is still low), oil price could be supported but it would take months for some weaker companies with little cash reserves to burn out first. When company goes bankrupt, it is bad news for energy sector ETF (eg. XLE) as it is business fundamental dependent but it could be good news for oil market (survival of the fittest).

During bearish market, for farmers, historically there were cases of some pour away milk (or destroy vegetables), instead of selling at low prices or given free. This is a way to reduce supply to support the “commodity” price. The idea is the same for oil but it could be a challenge to throw away oil as it requires proper way to dispose the explosive materials, any spill would be a high cost to clean.

3) Political Economy (Invisible Hands)

US government may intervene when more US shale oil companies go bankrupt with over 6 months without much production (no place to store oil if producing anymore) if demand is low during pandemic. Collapse of oil & gas industry (if not saved by global countries), may start with US shales oil company with production cost of $50/barrel, burning money each month when oil price is below $20/barrel. After that, it may extend globally to OPEC and non-OPEC (eg. Russia with production cost of $20/barrel), eventually even Saudi with the lowest production cost ($5/barrel) may not able to survive.

Historically, oil & gas companies are strong supporters of local government, contributing to local economy, creating jobs. Therefore, there is high possibility that global stimulus plans (including “unlimited QE” of US) would save this key industry for collapsing in short term, so that it could recover again in mid to long term with natural demand > supply when Coronavirus crisis is over.

In fact, there is no need for demand > supply for oil price to goes up. As long as oil storage reaches a limit, no new drop of oil could be produced before it is being used, so oil price would be stable. This is similar to 0% car growth rate in Singapore, for each car deregistered, only then a new car COE (Certificate of Entitlement) may be issued, therefore the car price would not drop to zero. However, under extreme fearful condition, it is still possible for car COE to drop to $1 but car price would never drop to zero unless there is a derivate for car such as “futures contracts of Singapore cars”, only then it is possible to have negative prices, implying car buyer would get paid when buying a car.

If oil market is speculative (eg. negative oil price by right should not happen), when oil is at very low price, eg $10 or $5 or $1/barrel, then shorting won’t help much as even USO may go bankrupt, then not much “meat” of profits left. If so, the “invisible hands” (big boys) may start to turn to long oil price to profits again from oil, but using reserved direction. So, who are these invisible hands? It could be big investment funds (non-oil related), major oil producers themselves (covering the losses in oil prices with investing in giant oil & gas stocks at very low prices). In the next 6-12 months, we may know who are the big gainers in oil market, then invisible hands would be clearer. Usually they could affect the oil prices, therefore there could be major news in next few months if they decide to turn the oil market around again.

4) Size of Oil Funds (Strength of Fund)

New global investment would keep on coming to oil ETF funds (including USO, the largest and most popular fund, despite it has contango issue with high holding cost), especially whenever oil prices coming to new low. The reason is there is no other better way to invest in crude oil, unlike some people could buy gold or silver and keep at home for price appreciation one day.

If USO losses in contango is supported by new funds (entering at lower unit price), the fund still has positive NAV, could still continue follow the oil prices for possible recovery. It means this is a mind game between high rollover cost (monthly holding cost) vs tremendous high potential of oil prices (when demand > supply with no market threat one day). If USO could last until oil prices reverse the mega trend (from the worst case, could be negative $37 or even lower), then the high rollover cost of contango is a good issue to have because capital gains from higher oil price could offset this holding cost. However, an USO investor may not expect 100% capital gains when oil prices recovers from $15 to $30/barrel as there was cost incurred during the holding period.

However, when fewer new funds come in, USO continues to lose in contango for 6-12 months with negative oil prices or large monthly prices gaps, then possible even for USO to go bankrupt but this will be a very severe market condition as it means many oil & gas companies may also bankrupt at the same time (even XLE would have serious correction, many oil & gas stocks would disappear). Before that, smaller oil funds which are less popular would go bankrupt first if could not last through the winter of high contango with low oil prices.

USO plans for 1-for-8 reverse share split (stock consolidation to 8x higher price by reducing the number of shares), price gap from $0 (psychological limit) would be further, giving more rooms for contango to erode the prices with monthly holding cost. In addition, USO also could rollover to 2 months later, not just to next month of futures contracts which could avoid high right of negative oil prices. However, if so, correlation of USO and oil commodity would be weaker, may not benefit fully when oil prices recover in very short term (eg. certain unexpected good news from major forces mentioned).

In short, size does matter for oil ETF. USO could not be 100% protected as it is based on derivatives of oil futures contracts, therefore it is not the same as oil commodity which is a giant. USO is a conditional giant when the rising oil prices could offset the contango cost. If contango cost is more and faster than the rising oil prices, then any oil funds (including USO and many other oil funds) or even oil producer countries (not just companies) have to go bankrupt.

===============================

In short, whether USO and other global oil ETF funds or even many oil & gas companies may go bankrupt depends mainly on 4 factors above, a power struggling among big funds, invisible hands, Coronavirus and oil storage limit. If USO could still survive and reverse the trend, due to recent contango losses, the capital gains (eg. when oil price is over $30/barrel again) would be less. For an investor entering USO around $4 with oil price around $20/barrel, after 25% contango loss (could be more), may need to wait for oil price to recover to about $30/barrel to breakeven.

It will be a mind game among the earlier 4 market forces to determine up and down and mega direction of oil prices. Oil commodity is still a giant but it has become a tool for speculation, behaving in an abnormal way. USO oil ETF is based on oil commodity derivative, not a giant during contango period with low oil prices, especially during negative oil price which is very abnormal, mainly due to complex interaction of 4 market forces.

So, investors of oil funds must understand own personality, how much risk tolerances (any diversification or position sizing or cut loss measure) could take as crude oil is a high volatile and speculative market due to unpredictable market forces, especially during this period. Hope the sharing on oil market has helped readers. Please make your own decision for investing.

There is no need for investors to take risk to invest in crisis commodity or crisis stocks. There are many giant global giant stocks which could continue to grow in business and remain profitable during Coronavirus pandemic. Dr Tee spends about half a day to prepare this article as some readers may be worrying about the crude oil market, including chance of survival of oil ETF funds. When I finish the article, it is about 8pm, very touched to hear the cheering sounds all over the neighbourhood, motivating one another during this pandemic crisis. Even we may not know when the health or financial crisis may be over but we have faith that it will be over one time, so we need to ensure we are safe during this period of uncertainty, staying healthy by exercise more and enriching mind with valuable investment knowledge.

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Filed Under: Commodity Market, Market Outlook, Stock Market Tagged: commodity, coronavirus, crude oil, etf, funds, global stock crisis, oil & gas, uso

Investment Money Has Eyes (水涨船高)

Posted on March 22, 2020 Written by Dr Tee (Ein55)

Money has “eyes”, will find its way through the global investment markets (stocks, properties, commodities, bond, forex, etc), looking for higher and quicker return in bull market (eg. stock and property markets with stronger economy); seeking safe haven market for safety during bear market (eg. more cash in bank or higher demand in bond market with weaker economy).

When investment market is fearful, fund with global money would flow from stocks to bonds (especially for Level 3 country level bond, eg. US treasury bond) due to safety, resulting in higher bond price, therefore lower bond yield. US 10 years treasury bond yield even dropped to about 0.5% during the recent flash stock market crash, recovering to around 1.1% recently, but still at historical low level.

A few key points on investment money flow:

1) US is No 1 world economy, a safe haven, despite lower interest rate (0%), USD is stronger during current bear market, therefore USD/SGD at high optimism, about 1.45 exchange rate. Similarly, usually emerging market currency would be stronger during a bull market. Forex traders or overseas investors (require forex consideration in stock or property investment) have to understand impact of economy and stock market, etc, on each pair of forex.

2) US government bond yield at 1% is no longer for investment, more for safety. Therefore, it is possible even for bond market to have major correction (price down, yield up) but only when confidence of country is affected and there is opportunity in stock market recovery, then fund would flow from bond market or cash (in bank or under pillow) to stock market again.

3) When market sentiment is fearful, even Level 1, individual bond (corporate bond) would suffer but bond has fixed income and guaranteed for principal upon maturity, therefore it is possible to invest in corporate bond with higher return (eg. over 5% bond yield) but need to focus on shorter term bond (<6-12 months to avoid higher risk during potential global financial crisis) with strong business fundamental (unlikely to default in bond, supported by strong asset, earning or cashflow with lower debt).

Current global stock market crisis (about 30% is US / Singapore, 40% in Europe) is only a stock crisis due to fear (technical recession with falling in stock prices), not yet a global financial crisis (with declining economy) but investor has to monitor very closely, especially the 2 black swans of Coronavirus condition and Crude Oil market price war, making crucial decision before summer (Jun-July 2020).

Since global Quantitative Easing (QE or printing of money) is back again, the natural balance among the investment markets would be affected. With QE, it is possible for both stock and bond market to rise (flooding of money) and drop (exit of QE) together, not necessarily opposite to each other (usually when there is no QE).

Recent global stock crisis is a major reversal of how the smart money may flow among the 5 major investment markets (cash in bank, stock, bond, property, commodity, forex).

Readers should take proactive actions in next few months, especially for stock market, many global giant stocks are at very attractive discount (some even more than 50% correction) but positioning requires a unique combination of counter-trend and trend-following strategies aligned with own personality.

Learn from Dr Tee free 4hr investment course to position in current global stock crisis: What stocks and other investments to Buy, When to Buy / Sell.

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Filed Under: Bond Market, Commodity Market, Forex, Property Market, Stock Market Tagged: bond market, commodity, forex, investment money, Property Market, stock market

Strategies for Gold & Silver Trading and Investing

Posted on March 15, 2020 Written by Dr Tee (Ein55)

Gold and Silver are popular precious metals for commodity trading. However, they are no longer effective hedging tools against market fear (eg. inflation or uncertainty), when common pool of investors are fearful of stock market, especially during global financial crisis, commodity market (including gold, silver, crude oil, etc) would fall as well.

Over the long term, gold and silver move in similar mega direction for price trends. They have more unique mega market cycle of 30 years (dual peaks in 1980s and 2010s), therefore longer term investor of gold and silver must know their optimism level to lower the systematic risk due to market cycle. Both gold and silver have crashed in year 2013, after reaching the 30 years mega peak.

From investing point of view, despite gold and silver relatively at moderate optimism in long term but when global commodity market (eg. crude oil) and stock market are falling, the fear from similar group of investors may correct the gold and silver prices.

Relatively, gold and silver also have relative competition, maintaining gold/silver price ratio of about 20 to 100 over the past 50 years. Currently, gold/silver ratio is near to the historical (50 years) peak of 100, implying gold has more downside relative to silver. Some smart investors apply the spreading (20-100) of gold/silver ratio for trading, eg

1) Sell Gold Buy Silver

when gold/silver ratio is crossing below 80

2) Buy Gold Sell Silver

when gold/silver ratio is crossing above 40

After the major correction, since Year 2016, Gold has been bullish for the past few years, suitable for momentum trading to buy high sell higher. In the same period, Silver is also recovering but more cyclic in nature (silver is as if a more cyclic “penny stock” while gold is a more stable “blue chip”), suitable for swing trading over the past few years.

From trading point of view, gold has higher risk of falling for short term to mid term as gold prices are falling below US$1550/oz, the neckline of double top at high optimism (crossing below 75% optimism around $1600 was an earlier signal for exit for trading).

Unlike stock, gold and silver are pure trading tools, no business fundamental behind. So, follow Technical Analysis to position if interested. Gold has to break higher than US$1600 to resume the uptrend, therefore traders may wait if there is a reversal.

Long term trend for silver is similar to gold but short term silver is much weaker in price strength compared with gold. Currently both gold and silver are under shorting pressure due to short term bearish signals.

There are several major investment markets (commodity – eg gold / silver, stock, property, forex, bond, bitcoin, etc) with unique market cycles but they share 3 universal formula to make money from investing or trading:

1) Buy Low Sell High (Cyclic Investing)

2) Buy Low & Hold (Growth Investing)

3) Buy High Sell Higher (Momentum Trading)

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Filed Under: Commodity Market, Market Outlook, Technical Analysis, Trading Tagged: commodity, gold, investment strategies, market outlook, silver, technical analysis, trading

How to Capture Falling Knife Safely for Stocks in Crisis?

Posted on August 3, 2016 Written by Dr Tee (Ein55)

Ein55 Newsletter No 035 - image - Falling Knife image

Every crisis is an opportunity. We have learned to be greedy when others are fearful. However, not everyone is mentally prepared to buy low and sell high following one’s personality. When a business is in crisis, the stock price is like a falling knife, one could get hurt when enters too early, buy low and may get lower, emotionally affected with the endless falling prices.

For example, over the last 2 years of crude oil crisis, stock prices of global oil & gas stocks are significantly corrected. Singapore oil & gas stock index is at 9% optimism (see chart below), a very attractive price level over the last 10 years, upside is much higher than downside from a long term perspective. However, whenever there is a technical rebound due to good news (eg. recovery of crude oil price), there could be another negative news who correct it down further (eg. Swiber plans to wind up the business recently).

Ein55 Newsletter No 035 - image - Falling Knife

Here are a few important considerations for us to safely capture the falling knife of a stock in crisis:

1) Fundamental Analysis

Some weaker stocks may not survive through the crisis. It is critical to always consider giant stocks with strong fundamentals. Based on the survival of the fittest, after the winter is over, these strong stocks will grow stronger, especially there are less competitors with higher demand then. For more conservative investors, one could wait patiently for signs of reversal in the business performance.

2) Technical Analysis

While long term view of a stock could be at attractive low price, the intermediate price trend usually is bearish for a stock or sector in crisis, eg. commodity, shipping, casino, etc. It is important to follow the trend before entry, waiting for the falling knife to drop the floor first, before pick it up safely. Confirmation of uptrend is required, aligning Level 1 (individual stock), Level 2 (sector / industry), Level 3 (country / region) and Level 4 (whole world).

3) Personal Analysis

One should know own’s personality before deciding whether short term trading or long term investing is a more suitable approach. It is hard to force a trader to buy low and wait for several years to have tremendous capital gains. At the same time, a true investor could grab an opportunity even with counter trend in prices, ignoring the daily market news, using strong holding power to reverse the trend eventually, buy low sell high.

Filed Under: Commodity Market, Fundamental Analysis, Market Cycle Investing, Personal Analysis, Technical Analysis Tagged: commodity, oil & gas