Nothing has changed since New Year's Day
That's pretty much it, nothing much has changed since the start of the year. The narrative is still the same: Oil price is down, some economies in Asia are slowing as expected and wall street is now expecting a few rate hikes as insisted by Fed Chair, Janet Yellen.
This comes to show how important it is for us as investors to ignore the noise (gyration) of the market and focus on fundamentals and what is happening on ground.
Based on observations, I am not sanguine of our economy especially on the oil & gas and commodities sector. *My viewpoint remains unchanged since Nov 2015. Some observations I have noticed are the slowing sale of property units here (by URA's data), local companies contemplating retrenchment to rightsize and an uptick in employment hire by a particular public service sector due to increasing applications; my opinion is things may be getting worse.
What I am doing
As well coined by a certain blogger: "Don’t fall into the trap of thinking a downturn affects all companies in the sector the same way"; it is important to sieve through beaten down industries to search for the well managed ones as evident by their history of cash flow generation and balance sheet. This is because the market may have indiscriminately sold down all stocks in a particular sector - even the well managed ones.
As such, I am eyeing a few O&G related counters and have initiated a small stake in Tiong Woon. The company specializes in cranes and have a heavy exposure to O&G customers. However, given that the company is much more conservatively geared as compared to Tat Hong (worth noting has a different customer base) and that its new HQ is now ready, I am giving it a go at 0.22 (albeit 5 lots as that was what Mr. Market was willing to sell me).
Similarly, I have accumulated FSL trust despite the lower tanker rates vis-a-vis 3 months ago. The company is on the right track in downsizing its debts and is generating strong cash flow. I expect it to generate 70 mil in operating cashflow, which means an estimated free cash flow of 14 mil (current market cap of 93 mil). Of course, I am mindful that its operating cash flow will be dependent on the market conditions of tanker's market rates.
Similarly, I have accumulated FSL trust despite the lower tanker rates vis-a-vis 3 months ago. The company is on the right track in downsizing its debts and is generating strong cash flow. I expect it to generate 70 mil in operating cashflow, which means an estimated free cash flow of 14 mil (current market cap of 93 mil). Of course, I am mindful that its operating cash flow will be dependent on the market conditions of tanker's market rates.
"Shorting" the market
Instead of daring to short the market via CFD, I have decided to hold more cash to reflect my bearishness. In the recent run up, I have decided to divest from Accordia and some stake in Silverlake Axis. From Silverlake's cash flow, the company is just about able to sustain its annual dividend of 3 cents. Hence at the selling price of 0.615, my opinion is that it is just about fairly valued at 4.8% yield. The price is right and it is time to convert some of these investment into cash.
This is my way of "shorting" the market - accumulating cash. The growth of my ready to access cash is now at $100,000. That does not mean I will be trigger happy and purchase any falling knife. Discretion in purchases is still important and targeting companies with a strong/clean balance sheet and operating well under a conservative/good management (be it in a distress or "recession proof" industry) is what I will still have to do.
ah shucks i tot the yield for silverlake is actually larger than this but this is a good post on your pscyche now.
ReplyDeleteI included your blog in my blogroll by the way.