Invest like Benjamin Graham in Malaysia stocks

Benjamin Graham is the father of  investing and his way of value investing was to search for net-net stocks where he will construct a basket of stocks as his portfolio. His method of value investing is still being widely practiced by value investors such as Seth Klarman, Third Avenue Management etc. Following my blog post a month ago on Singapore stocks via a report by CLSA, I would like to feature a similar report by CLSA on Malaysia stocks. 


Ben Graham stated 10 rules for stock selection, the first five measuring “reward” (price relative to earnings) and the second five measuring “risk”  financial soundness and earnings stability). Ben Graham's 10 criteria are:

• Is PE ratio less than half the reciprocal of the 10yr government bond yield?
• Is the PE ratio less than 40% of the 5yr average?
• Is the dividend yield at least 2/3rd of the 10yr government bond yield?
• Is the share price below 2/3rd of tangible book value per share (BVPS)?
• Is the share price less than 2/3rd of net current assets per share?
• Is the net gearing ratio (net debt/equity) less than 100%?
• Is the current ratio (current assets / current liabilities) greater than 2x?
• Is total gross debt less than 2x net current assets?
• Has EPS growth over the last 5 years averaged more than 7%?
• Has EPS growth been negative no more than 1 year out of past 5 years?

Mirroring these 10 “value” requirements, CLSA Asia screened our ex-financials coverage universe: 13 of 31 stocks score 5/10 and above – big-caps are Genting, PGas, Tenaga, Gamuda, Genting(M) and KLK. Small-caps top the list, with Padini scoring 7 (highest) and rubber glove stocks Top Glove, Hartalega scoring 6. At the bottom of the list, we are underweight Astro, BumiArmada and Maxis. Stocks showing value and dovetailing with “base case” election outcome top picks are Tenaga, Gamuda, PGas, Genting(M), UEM Land, Top Glove and Padini.

For those interested to read more about the report by CLSA, please click here

SG Stocks Investing Strategy: UOB Kay Hian

This post is on SG stocks investing strategy recommended by UOB Kay Hian which might provide some investment ideas for those of you reading the post

For 2013's remainder, UOB KayHian tips being selective on blue-chips and seeking alpha in undervalued mid-caps. With the top-15 STI stocks at an only 3.3% average discount to long-term P/B means, stocks with capitalisations below $1.5 billion may offer deeper value, it says, with its top-five segment picks Silverlake (5CP.SG), Kreuz(5RK.SG), Triyards (RC5.SG), Ying Li (5DM.SG) and Sino Grandness (JS5.SG).

Its large-cap buy list includes DBS (D05.SG), M1 (B2F.SG), Keppel (BN4.SG), OUE(LJ3.SG) and SIA Engineering (S59.SG). Singapore's overall market valuation is inexpensive at 15.1x 2013 P/E, a 7.5% discount to long-term means, it says; "The next one to two quarters could see a mixed performance given uninspiring macro data points such as a weak 1Q13 GDP and uncertainties in the eurozone. Nevertheless, we see the recovery picking up momentum in 2H13 and for the market to head towards our 3500 year-end (STI) target."

 It tips several potential themes for outperformance, including rotation within S-REITs to office and hospitality segments, strong cash generators such as SIA Engineering,Super Group (S10.SG) and Silverlake, deep-value stocks with potential catalysts, such as Ying Li and Guocoleisure (B16.SG), and mid-cap consumer and oil-services companies.

Undervalued SG stock: Goodpack update

I first wrote about Goodpack as an undervalued stock when I started the blog 3 years ago. Three years on, I still feel that Goodpack is a good stock and is one of the undervalued stocks listed on the SGX. The following blog post is a brokerage report on Goodpack issued by DBS Vickers on 19th March.

In the report, they had recommended investing in Goodpack. Below is the excerpt from the report on the investment thesis on Goodpack:

•        Russian market and new Lanxess plant in Singapore to drive stronger growth from 2Q13
•        Gaining traction in autoparts segment
•        Recent price weakness is a buying opportunity


Shifting to faster gear. Goodpack should see stronger growth from 4QFY13 (FYE June) with new contracts from the Russian market and Lanxess’ new plant in Singapore. Momentum should continue into FY14 with the pickup in rubber trade volume on the back of pent up demand in the replacement tyre market, which constitutes c.53% of total rubber demand, following 20 months of weakness. In addition, cost savings from the global tender exercise will help to improve net margins by an estimated 1ppt. We expect these to fuel FY14/15F net profit growth of 25%/16%.

Gaining traction in autoparts segment.  Goodpack has been knocking hard on the doors of GM’s OEMs and suppliers as well as a few other automakers. Hundreds of samples have been sent for testing and we understand that the company is making progress with a few suppliers in Europe. Future announcements of autopart contracts should be a share price catalyst. 

To read more on Goodpack, please click here 

Finding Undervalued US Stock: Coach Inc

Background

Coach is one of the most recognized brands in the luxury goods industry. It is a leading marketer of fine accessories for women and men, including handbags, women’s and man’s leatherwear, footwear, travel bags, watches, fragrances and related accessories. Coach was established in 1941 and sold to Sara Lee for $30 million in 1985. Sara Lee Corporation then sold 19.5% of the shares in an IPO in October 2000. Since listing of the company in New York Stock Exchange, Coach has grown to be the number one brand within the U.S premium handbag and accessories market.

Business Model
Coach’s merchandise is sold through Coach stores, factory outlets, select department and specialty stores, duty free locations in airports and online via their website, coach.com. It groups its business into 2 segments, namely Direct-to-Consumer and Indirect. Over 85% of the company’s sales are generated by Direct-to-Consumer segment, with the majority of the sales coming from selling handbags and accessories.  

Coach markets itself as selling “accessible luxury” and its pricing strategy for a handbag ranges from $298 - $1000 which means that its product reaches a larger consumer demographic than other high-priced competitors such as Louis Vuitton, Prada which focus on the very wealthy.  The strategy of targeting the higher and upper middle income shoppers differentiates Coach from its competitors and also helps to establish it as the poster child of tapping into this global trend of consumers wanting to trade up in the quality and style of what they buy.

As Warren Buffett says “In business, I am looking for economic castle protected by moats”, Coach has a narrow moat and competitive advantage. It has a strong brand presence in the luxury market and this is not easily eroded by other competitors. New competitors into the luxury brand industry will have to spend a large amount of money and resource to build up brand awareness and image. There is also consumer loyalty as Coach has been delivering high quality products that is simple, reliable and perceived value for the money.

To further grow the business, Coach has outlined its strategy of (i) raising its brand awareness and market share in under-penetrated Asian market with China being the top targeted market (ii) growing its woman’s business in North America and European market (iii) increasing its men’s business in North America and Asia (iv) maximizing e-commerce sales

Why is Coach a screaming buy?

Coach is a great company to invest in for a multitude of reasons. Coach has executed its strategy successfully over the past decade. Its revenue has grown progressively every year at a compounded growth rate of 21%. This is a mean feat considering that it is in a highly competitive sector. It has also showed that it is able to grow through strong or weak economies as evident by the increase in sales in 2009. The ability to keep increasing revenue shows the strength of its pricing strategy.

To find out why Coach is a undervalued stock that could turn out to be a multibagger, click here

Transcipt of Warren Buffett's 1991 Lecture to Notre Dame Faculty

This transcript details 3 lectures that Warren Buffett gave in 1991 to Notre Dame Faculty. Despite the lecture being 22 years ago, the ideas is still very relevant today and is definitely a great read

For readers who are interested, you may access the article Warren Buffett's 1991 lecture transcript