How do u define value? What is undervalued?

i do a lot of research on stocks, there are dozens of ways of evaluating a company, but I've found what I believe to be the best.

Here are some of the other "interesting" ways of evaluating a stock. hint hint: this isnt actually what I use.

1)Taking the cash holdings of the company out of the market capitalization, if the company has a market cap of 150 million at RM1.00 per share and an NTA of RM1.60 and holds 90million in cash. You take out the cash holdings from their market cap, essentially the business is being valued at RM0.40. So here you have a business that is capable of generating cash of RM0.60 but is being sold for 40 cents.

2)Identifying turn around companies, these are companies where they used to be profitable, but because of a slowdown their stock price has been hammered down till unreasonably low levels. The companies earnings have shown a steady recovery, but the stock price has been staying at the price it was at when business was terrible.

3)Identifying gaps between a shares price and its earnings per share. If the earnings of the share has been steadily increasing but it's price has stagnated, is it undervalued?

4)Balance sheet clean ups, companies that have cleaned up their balance sheet by reducing and getting rid of all their debt while maintaining an unreasonably high NTA vs their share price. EG: Company A has 200million in assets but holds 100 million in debt, the company gets rid of all their debt, so they have 100 million assets and no debt, but their share price is only 30~40% of what they are worth, eg:the market cap is only 30million. The rational is that by reducing all their debt, they have taken away any risk of defaulting on their loans, hence no more risk, but the business is still being valued below NTA.


and many more...

just for the record,

TGUAN (Thong Guan), qualifies for 1,2,4 of these methods of identifying an undervalued company. So is it undervalued?

Profitability is sort of implied when I say the balance sheet has been cleaned up... . Since u sell off less useful assets to pay off ur debt.

Basically ur saying a whole lot of nothing... What if profitability has been increasing for 5 years in a row but the business equity hasn't risen at all?

talking rubbish

Point 1)
Say you have a company that is selling at RM1.00 at the stock market with an NTA of RM1.60. This company has RM0.60 in cash holdings, because the cash is not being used to run the business, it is not part of the business. So when you value the business, you take out the RM0.60 from their share price, because essentially if u buy over the business for RM1.00 per share, you will get RM0.60 in cash, the rest of the business that has managed to generate that RM0.60 is only being valued at RM0.40. RM1 - RM 0.60 = RM0.40.

So this RM0.40 is the price of the business after taking away its cash holdings. Hence the 40 cents price tag.

Point 4)
Give u an example, say there is a company that is being sold in the stockmarket for RM0.30 per share, but their NTA is RM1, this company is selling very much below their NTA, hence it is seriously undervalued is it not? But the reason for it being undervalued is because it has not been very profitable and they hold a large amount of debt. If there was a very bad year the potential for bankruptcy might be quite high since they owe RM100million. So they clear all their debt and sell off all their assets that are not generating money. They now have RM100million worth of assets and zero debt, but their stock price hasnt taken into account the balance sheet clean up that they have gone through, it is still being priced as if they might go bankrupt because of high debt.

This is just flat out wrong. The bad apples are mostly government linked companies, thats where all the hanky panky things disappear into, companies like MAS, Proton, these are the ones u need to watch out for.

There are so many great companies out there. So many outstanding underresearched companies.

I know u googled that. Thong guan's main business is in the plastics industry, the 888 is a tea brand that they used to do, it contributes less than 1% of their profits.

I can name you 20 companies I would be comfortable for holding for the next 5 years, but I like my stocks low priced, so i dont want to draw attention to them. I'll give you one, Mega First corporation(MFCB), since its already grown so much.

Since u like management so much, heres the guy who is handling it.
Major stock holder takeover in around 2005~2006, Goh Nan Kioh. One of the formar founders of IJM, has roots in IGB, which is owned by Tan & tan, the people who built mid valley megamall. One of the most outstanding directors around, low profile and relatively unknown, Last 5 years excluding the financial crisis they have grown at 15% or more, their cash/liquidity value holdings is hitting 200 million. Balance sheet clean up in progress, every year debt has been reducing at a steady rate.


Current PE of about 6~7.

Grossly undervalued at RM1.70, which is its current price. Foreign shareholding of MFCB has been increasing in the last month, a small foreign fund has bought over 2 million shares in the last month or so.

They are in the power plants business, a very profitable industry to be in, similar to the business Tanjong is doing, however if u were to put Tanjong's PE onto MFCB, which u should btw, because MFCB's growth is better than Tanjong, MFCb is easily priced at RM2.50.

So there u have it, my "recommendation". However MFCB has been going nowhere but up since I bought it a year ago. So u might want to be careful there. But according to my analysis, this company is what u would call "undervalued".

Ur tactic is simple and effective. But just because it is simple does not mean that it is the only correct technique nor is it the best. Saying there are only 5 good stocks worth investing is just blatantly wrong. To be frank its actually quite ignorant.

I do not monitor companies, I find undervalued ones and buy them, and wait for them to become fairly valued or overvalued. It is not a buy and pray technique, as I think u ought to have noticed now.

Just for the record I bought MFCB at 96 cents, my holding period is probably a little over 1 year. Factoring dividends that return is about 90%. Buying a stock like public bank right at its lowest point is frankly speaking, a lot to do with luck. Excuse me for saying so, its not exactly a common reoccurring thing as well. Public Banks lowest price in the last few years was RM7. It wasnt because of any due didligence on ur part.


How much time u spend looking at a company and the "return" u get from ur time is scalable. There is no set return, if u play with 100k u will get 90k, If u play with 5k u will get 4k. The returns u are looking at depends on the certainty u have on ur call of whether it is a fantastic company or not.

PS: MFCB's policy is to give out dividends on whatever the fixed deposit is paying. I'm looking forward to my 3%+ out of RM1.70. Which is about 6 % on my original investment.


EDIT: The only period where public bank was at RM7 was last year, so ur dividend after taking away tax is probably less than 50 cents. Not the RM2 u said. Unless u bought it 4 or 5 years ago.

This post has been edited by flight: May 18 2010, 10:40 PM

Apparently ur lacking in this area called manners. Now I've shown u the good will to explain to u my perspective, if u cant take ur head out of ur ass to smell the fresh air then its just ur loss.

Public Bank was trading at RM6,50 for several years before it broke into RM7, there was no "entry price", u saw it going up and bought it, the priod before that it was LOWER than RM7, so how is it ur entry price is higher than the average price at the time? U got lucky. Pure and simple, and it was luck that came from watching a stock rise. When I said the technique of taking shares that is simple, I assumed that u bought it DURING THE DIP, which u didnt, u bought it when it started rising. So where is the technique? You saw a blue chip company and u thought it was good, and u bought it and got lucky. Saying that the whole field of investment is obsolete because u got lucky ONCE is just so ridiculous its hardly even worth debating.


The SMALL companies are where the 10x are at. You have neither the capacity nor the knowledge to be able to run research on these shares, so u say its useless. Your public bank's return over 5 years is a little less than 15%. It's nothing to shout about, and like I said, it had a lot to do with luck.


By saying that a stock provides regular dividends matching the fixed deposit I am "buying and praying"? Buying and praying is when u buy in with no knowledge of the company and hope it goes up, well im sorry but isnt that what u did? As opposed to my in depth research, which btw u also acknowledged?, btw my return is around 90% in less than a year, thats more than 4 times urs.



So if ur house is GOOD ENOUGH, u dont want to get a better house? If you can walk 10 km it is good enough? U dont need transport right? BTW, the technique I acknowledged as SIMPLE AND EFFECTIVE, was buying blue chips on dips, thats not what u did. So u have no business saying that. Since u got lucky.



Ur ignorance is just mind boggling. u want 10x and 20x returns? Well Im sorry but that doesnt help without waiting for a long time and putting a great deal of time into SPECULATING. There is no research that can guarentee u a stock will move up 10x. it's just not something that can be done consistently. LOL
But on the flipside, let me just tell u what doubling 10 times can do to RM10k, it adds 3 zeroes behind it, RM10,000,000. Now does that sound attractive enough to u?



Well, let me tell u why its better.
1) It doesnt rely on luck, its backed by FACTS and plans.
2) It provides u with the know how to go in BIG. If ur not sure ur not going to put in ur hard earned money are u?
3) It is CONSISTENT, which means the returns can be COMPOUNDED.
4) AGAIN, u have no "KISS" approach, just because u got lucky once doesnt mean that u can keep doing it. Where were u when the market went down 50%?
5) Doubling works by doubling ur money, if u can double ur 40k 3 times, u will have 320k. Are u telling me thats not worth it?
6) Of course this sort of research takes a lot of time to LEARN, applying it is simple.



Anyway Im just enjoying this, so excuse me for hijacking the thread.

Why does this matter?

My portfolio is in the 6's. I started in the 5's.

edit: i've been doing my own research for about 4 years, I went in during 2008 and late 2009.

This post has been edited by flight: May 19 2010, 12:35 PM

I said ur comment on how the stock market only has 5 shares worth investing is wrong and ignorant. Dont take my words out of context.


Actually no u werent.

What u said was,


im not going to stray further from the topic.

Perspective is not as ambiguous as u think. Just because u say it is ur perspective that that there are only 5 stocks worth investing doesnt mean its not dead wrong and pretty damn ignorant. Saying well this is my way just doesnt cut the cake.

Some things are more certain than others, saying apples are purple might be a new perspective, maybe ur looking at it from another angle, maybe its the lightning, maybe its because its been painted purple. But that doesnt take away from the fact that there are no purple apples.


Well damn right then, in that case state very clearly that it is in your system, not investing per say, but ur system of investing. Im also not sure where u got the idea that Im not comfortable in buy and holding for 5 years or more.


What ball are u sucking on. Where did u get the idea that I NEED to watch my system. I dont NEED to watch anything. If spending 10 minutes to check ur portfolio in a week is watching the market, then I think its pretty damn idiotic.



Jesus christ... What exactly is my way may I ask u? Since u seem to know exactly what it is that im doing. Do u think its technical analysis? Charting? Buying random stocks?

Again, a simplified version of what i do is looking for good undervalued companies with unlimited room for growth. If the stock becomes overpriced selling it is just common sense.

I am not INSISTING anything, I am not saying a person MUST look at their stock every week. I am saying I spend about 10 mins a week looking at my portfolio.


I am not INSISTING that my way is the only way to make money in the stock market. I am saying u r ignorant and irritating. If u give a general comment that is wrong and ignorant, and try to pass ur own opinion as fact, I'll damn well point it out.

DO you comprehend?????

---

Added on May 21, 2010, 10:34 pmlike chicken and duck.. im not continuing this.....

This post has been edited by flight: May 21 2010, 10:34 PM

some people get it, some people will never get it.

Risk appetite has nothing to do with this, it is how well u are able to evaluate what a business is worth. When u can put a number on the business, u can find a margin of safety. When u buy below the margin of safety, u just need to wait for the market to find out the value that uve been able to see.

It has nothing to do with monitoring the market, ideally the best stock is the one u nvr have to sell.

A 20% return doesnt necessary mean u need to take a high risk, it is not a game where u can either have this, or have that. If u do ur homework u can have both. To give u a very good example, i just need to point u at the recent market crash, to some people it was pretty much a sure bet that their returns would be fantastic while the risk they had would be low.


dreamer as much as id like to pull out every single one of the things u said wrong and point out why its so blatantly wrong, i dont think i want to turn this into an ugly flame war.

Let me just provide this analogy.
If I were to claim that the sky is green in at night and there are pink hamsters dancing on saturn, anyone with half a brain would know i had no idea what i was talking about. If I went the way dreamer101 has been going and claim that it is my opinion that there are pink hamster dancing on saturn, and that if anyone was to disagree with me, it would only be their opinion, and since their opinion is not a fact. That they would have no case against my pink hamsters on saturn. This world would be a funny place indeed.

Some things are more certain than others, and some things less certain. If u are going to take the stand that just because it is an "opinion", then there is no argument. I would like to call it out as being what it is, which is a strawman argument and frankly speaking it has probably something to do with self denial as well.

This post has been edited by flight: May 23 2010, 05:51 AM

This is getting massively irritating....


Do u know what is an irrelevant answer? I ask u what is the sky colour, u tell me the chicken hatched 3 eggs today.
When I say that the risk u take depends on how well u are capable of evaluating the business. That is what I am saying.
I am not saying that they have to evaluate what the business is worth. I am saying that risk can be taken away if u do ur homework.


Again, I am not saying what other people need or need to do. I am saying if u do this, u can get that. Whether u choose to do it is up to u.



When I say something is more certain than others, I am referring to your claim that only 5 companies are worth investing in Malaysia. Somethings, like there only being 5 companies in Malaysia worth investing, is almost certainly wrong, however since u havent responded to that, I assume that u know just exactly how right I am. Especially since ur position is now that it is ur perspective. Im still waiting for u to swallow ur words.



This is entirely to do with the system that exists in Malaysia, the accounting framework is designed to provide numbers that are accurate. It's true that regulators in Malaysia are sorely lacking, but saying that the financial numbers are just the opinions of accountants is again. WRONG AND IGNORANT. Accounting FRAUD is something u go to jail for, again this sort of events where financial fraud happens is the exception rather than the norm.


edit: Let me emphasise something, I have no problem with the way u r picking stocks, i am not saying one way is inferior than another, everybody is different. A lot of people dont have the capability or the time to spend on learning how to invest. What I am saying is that what ur doing is a very simplified version. It is for the layman, ur claim that all the other ways are not as good or the market only has very little shares to invest in is just WRONG. There are many other ways to invest.

edit edit: Financial figures are just an accountants opinions... LOL.

This post has been edited by flight: May 23 2010, 07:55 PM

This is just u being stubborn.


By saying that financial statements are an accountants opinion u are basically saying that the entire field of accounting is obsolete... Which is again.... not true..... Do I even need to say this?

Good god...

What sort of facts do u want be to bring out huh? How about that 99% of professional investment is evaluated based on financial figures which come from the accounts? Its such a ridiculous proposition that it hardly needs any evidence. What u are saying is that the financial accounts are suspect because it is based on an accountants opinion. What else is it that u are trying to say huh? Is it not that it is because the accountants opinion is such an important factor in the financial accounts that it renders reading the accounts obsolete?

There are issues in accounting that are subject to a "subjective" opinion, but even subjective opinions are supposed to be within the band of what is considered acceptable. U cannot add a good will of 10000million, when it is only worth 10 million. U cannot classify something as an investment when it is not. If u were to do that, it would be considered FRAUD.

What u are saying is just downright IDIOTIC, if accounting wasnt good enough to provide u with a barometer to judge the company then u might as well not have it. The subjective nature of some parts of accounting does not mean that the financial reports are not worth reading. Nor does it make them an accountants opinion.

just for the record, this is not an OPINION. This is called LOGIC.

This post has been edited by flight: May 23 2010, 10:56 PM

Professional investment can be a failure, but it is hardly due to reading the financial statements.



Yes it is a choice, however saying that the financial statements are unreliable because they are based on an accountants opinion is not a stating a choice choice, it is a statement, which happens to be false.

donkey stubborn.