CIMB on Bumi Armada Oct 2017

Well we still like Bumi Armada compared to other operators such as Sapura Energy. We think that the future prospect for Bumi Armada could be considered neutral but the current premium that it is trading is much cheaper than other operators.

But this report from CIMB gave us the heads up from this paragraph.

Bumi Armada Berhad (BAB) may need rights issue, on top of partial Olombendo stake sale

So I guess the weakness in terms of the stock price not moving with the increase in the price of crude comes with the reason of analyst anticipating a rights issue ahead. We would love to acquire after the stock goes Ex. Simple as that!

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How did we Analyze the Karex Trade?

You might be asking yourself like what the hell is this OM Capital giving free technical tips to everyone in the market. Some might thought we recommend a stock and as soon as people started buying in, we sell it to the idiots who are buying it due to our recommendation.

Seriously if you lose money in this market, you gotta blame yourself for your lack of knowledge and understanding in this market.

We would like to advise all of you that if you want to be playing in this market, please do your homework and be more hardworking. Money that’s freely available in the market isn’t going to make its way into your pocket easily. If luck is on your side, then we are speechless to that.


So… How did we Analyze the Karex Trade?

Now it was just last week when we posted this on Facebook recommending Karex as a good but Super High Risk trade. For obvious reason this is a really the true situation of catching a falling knife.

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Fairly simple a double bottom was formed and if you are catching a falling knife, you shouldn’t catch it blindly. Look for a proper support and punch in your entry.

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Always remember this in trading, if you buy a stock and turns out it is a wrong entry, you need to cut. So to sum it up, buy low also must cut, buy high also must cut, might as well try my best to buy low. Rather than buying when the stock is on the way up, buy it when people are dumping mad. That is the first rule of sharp dumping stock!

In this case, we could either be buying at previous trough of at RM1.38 or the wicked touch two days ago at RM1.37. This is where we believe that the element of luck comes in. Sometime it works and sometime your plan fails. Do not chase if your plan fails.

Obviously a few days later the stock raise in price and again we posted another Take Profit note on our Facebook Page.

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The thing that made us believe that it is time to take profit is when the volume transacted was quite thin when the stock was rising. We believe that when volume isn’t present, it’s merely price action giving you a higher quotation rather than real demand coming in.

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What we realize is that the market was strong that day and it might just test the RM1.60 limit. We were prepared to sell since the gains were quick in merely 5 trading days or so. Remember that this is a falling knife stock, never hold too long until you are certain that there is a trend change.

Obviously it occurred to us that this was a bounce rather than a trend change.


To sum it up!

  1. Determine a point to buy and never readjust your buying point if it references previous support.
  2. Determine a suitable cut point, let it be loss tolerance or previous support breaks. Never readjust your cut loss limit as well!
  3. If the stock needs a lot of attention like this one, observe it every 3 to 4 or hours or so.
  4. Observe what buyers and sellers are trying to do
  5. Determine point of exit, let it be earning enough for one trade, stock going to fall again, just because you don’t feel like holding it anymore. Never avoid selling due to small profit. Small profit or not profit can become huge loss.

We hope by posting this we could help our followers gain some insight. The reason behind free investment recommendation and advice is because we are collecting awareness towards the development of our entity.

Thank You

New Core Position in Gilead Sciences

A Brief Idea of Gilead Science

This company is famous for the R&D of hepatitis, oncology and HIV drugs in the market. As you can tell, there isn’t a cure for these diseases and what these companies are trying to achieve is to find a breakthrough for drugs to treat those diseases. But until then slow efforts are in the making to lower the destructive force that associated with those diseases. This proves that companies like these are subjected to steep growth if something valuable would to materialize.

That is the reason that attracted me to invest in pharmaceutical as the risk reward ratio presumably falls on the better side assuming moral hazard related issues were avoided.

What Initiated The Buy?

Gilead Sciences had been a targeted stock for quite a while and I’m pretty eager to add it as part of our fund since its growth potentials are really promising. But the price had been declining since my interest started in the beginning. As a matter of fact, last year the price didn’t actually correct to the upside making any point of entry being associated to ‘catching a falling knife’.

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That being the case, a clear technical indicator comes in to good use for minimizing the error of entry into a stock that is constant falling to no floor. Stock price begin to show strength prior to the Q2 2017 earnings release and I’ve decided to take position then.

 

Fundamental Numbers

We just can’t by into any pharmaceutical. Most big pharma companies are trading at price to earnings estimate at double digits. Gilead however is trading below 10 which doesn’t mean that the growth is much slower but there are some other reasons to that:

  1. Too much cash in the bank and shareholders are urging the management to buy smaller pharmaceutical companies

This phenomenon had gone over a year and they still haven’t found the right candidate for acquisition. The market had already paid a discount in terms of price to earnings expecting Gilead to do an acquisition. It is common for the market value of the acquirer to decline since the market acknowledge that the buyer always buys expensive than what the market perceives.

(see latest acquisition update below)

  1. It has been a while since new drugs by Gilead enter the market

With the most recent drug approved by the FDA, we shall see more approvals on its way. (see pipelines in the next section).

  1. Biggest revenue contributor Sovaldi recently faces cheaper drug competition

The stock price declined of about 40% seemed to have factor in this issue with lower performing drugs. The good thing is that drug quantity sold increases to match the lowered price. This stabilized the revenue for now until new products are approved in the future.

Pipeline

Pipeline shows the progression for each drug in the company’s drug portfolio. Phase 1, Phase 2 and Phase 3 differs with test runs on the amount of people. Phase 1 could run on just small group of 10 – 20 but Phase 3 goes up to the thousands.

Drugs might get stuck in Phase 3 for quite a while as the population increases, the variability extends and the occurrence of unwanted side effect presents itself. But after Phase 3, drugs get submitted to the FDA for approval and it doesn’t take long until it hits the market.

Compared to a year ago, Gilead’s pipeline had more and more drugs in the Phase 3 stage. This is a positive sign in the near future where once it gets submitted we see more than 90% success rate that the new drug gets approval. This is when the revenue and earnings start pouring in once again.

The company’s pipeline can be view in the link below.

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Conclusion

Most analyst had placed an overdone and there are just as many ‘Buy’ calls when the stock was trading at $90 versus our buying point of $70. This made it certain that it’s just a matter of time before things start to move again when the business stabilized.

I seriously do not think that if an acquisition would to take place in the near future, the price adjustment to GILD would not be huge. As every quarter passes with retained earnings pouring in, it just meant that the cash balance of this company would continue to climb.

As of now, the company has $8 billion (management stated $36 billion of cash, cash equivalents and securities) worth of cash holding as compared to a year ago at only $6 billion but the biggest problem is finding the right thing to buy. That would lag the stock movement since sitting cash isn’t making shareholders richer compared to invested cash with positive returns.


Acquisition

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28 Aug 2017 – Gilead finally decided to make their first purchase in years buying Kite Pharmaceutical for $12 B. The stock price reaction seems to be expected where the acquirer actually increase in value rather than falling.

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Guess this ends the chapter for continuous price decline for the stock awaiting acquisition. It is back to normal price movement now…

 

Another Quarter Another Feel Good Factor

Our high conviction stock post results for Q 2018 and in our view its not that satisfactory coming below our expectation. But the feel good factor comes knowing that there isn’t any deep selling done after a not so well quarter.

Institutions are buying recently with the names of Amanah Saham Bumiputera grabbing the stocks in bulk and this proves in fact showed that price to earnings would remain high with these institutional bodies on board.

If you have bought at a lower price to earnings premium then it is safe to say the asset you are holding on had been re-evaluated in terms of quality.

As attached, Maybank and CIMB reported and recommended a HOLD/Reduce rating for the stock. Since it falls on our high conviction target we are aggressive and holding on tight in return leveraging on this company’s growth.

Technicals

Meanwhile the chart is showing us chances of a break over RM 5.00 with an ascending triangle in the making. A rough drawn triangle following the upward sloping line marks somewhere just before Nov to determine where it would head.

Coincidentally, it would be near to next quarter’s earnings release. We recommend buying on dips for this stock.

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Report

Click for Report

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Maybank Reviews Malaysian Automotive Sector

The outlook is still positive but we aren’t that optimistic towards this sector for 2H 2017. From the lack of new models and only the arrival of face-listed ones, we see that this segment still lacks catalyst for the time being.

Unlike Q4 of 2014 where most preferred brands such as Honda, Toyota and Perodua released multiple new models and big cuts to push out old models. It is hard for that period to come back which makes us ponder when should we buy undervalued automotive counters.

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