I have been blogging on potential superstocks in the US and in Singapore. The reason for choosing these two markets is simple. I chose to lo...

Weekly Superstock Scan 18 June 2018 - 22 June 2018: Nil

I have been blogging on potential superstocks in the US and in Singapore. The reason for choosing these two markets is simple. I chose to look for Singapore stocks because its my home country, and the US market because it is the biggest stock market in the world.

Last week, the Trump-Kim summit happened right here in Singapore. I am really proud of my country for hosting the event. Out of so many countries in the world, this relatively small and unknown country had the honour of hosting the event that may possibly bring world peace. This shows that our diplomacy, security and efficiency were recognised internationally. 

For my readers, if you do not know where Singapore was previously, I hope that with the massive media coverage, you will know where the humble owner of this blog is located now.

Enough of the rant, but sad to say, there is no potential superstock this week. We have only seen two US stocks that passed the technical screen, namely AUTO and VSLR. Both stocks fell short of passing the fundamental screen.

The potential superstock of the week is GSH Corporation (SGX: BDX). GSH is a property developer in Southeast Asia, with four propertie...

Weekly Superstock Scan 28 May 2018 - 1 June 2018: GSH Corporation (Singapore)

The potential superstock of the week is GSH Corporation (SGX: BDX).


GSH is a property developer in Southeast Asia, with four properties under development in Kuala Lumpur and Kota Kinabalu, Malaysia. It also owns and operates the Sutera Harbour Resort in Kota Kinabalu, comprising two fivestar hotels, a 104-berth marina and a 27-hole championship golf course. In 2017, the Group completed the redevelopment of its flagship commercial property, GSH Plaza, which it later divested that same year. The Group also has a 30% stake in associated company, Henan Zhongyuan Group, which owns one of the largest food logistics and warehousing hubs in China.

Technical


GSH was trading at a high near $0.59 in the beginning of 2017. Thereafter, it start to trade in a trading range and started to trend down in the beginning of 2018. Since end February, GSH has been trading in a narrow trading range from $0.46 to $0.49. Last week, price broke above the range to close at $0.505. The volume of the week was 2.15 million shares, slightly more than 2 times its average trading volume.

There was no news released last week, but the surge in price probably obtained its momentum from the positive news two weeks ago, where all 100 units of the Coral Bay released in a private preview were sold out.

Fundamentals



Including the most recent quarter, GSH recorded 5 consecutive quarters of year-on-year EPS growth. 

Investment in China's Logistic Industry

In FY2017, GSH completed its S$41.0 million investment for a 30% stake in Henan Zhongyuan Group, which owns one of the largest food logistics and warehousing hubs in China. With more than 1,000 tenants, it houses a one-stop platform for food manufacturers, wholesalers and distributors.
In FY2016, this Hub transacted more than RMB 50 billion worth of trade.

The investment in the industrial assets is held for lease and yielded good returns. In FY2017, the Group recorded a total share of profit of S$17.3 million from HZY, consisting recognition of net negative goodwill of S$11.7 million from the investment and share of operational profit of S$5.6 million.

New Residential Projects

GSH owns 67.5% of Coral Bay, a 460-unit luxury condominium nestled within the gated community of Sutera Harbour Resort, in Kota Kinabalu, Sabah. Two weeks ago, it released 100 units at a private preview event, and they have been over-subscribed. The total value of these units exceeds RM330 million. The successful launch shows the strong demand for the Coral Bay and there is a good chance that there will be continued demand for the remaining 360 units of the project.


This year, GSH is also planning to launch its second luxury residential project in Kuala Lumpur. On 12 February 2018, GSH acquired a 50% stake in a prime land parcel of approximately 1.4 hectares in the heart of Kuala Lumpur’s Chinatown that could potentially be developed into a premium 1,700-unit condominium. Given's GSH good track record at its first residential project in KL - Eaton Residence, GSH does have a good chance of succeeding in this second project.

Insider Buy

The chairman of GSH, Goi Seng Hui (wow I just realised did the chairman tried to name the company after himself while claiming GSH stands for Global Strategic Holdings) owns about half of the company's share. On top of that, he has been buying back shares of GSH frequently this year, with the biggest purchase being a 3.4 million buy at an average price of $0.47. He appears to be very confident on the company moving forward, or will there be plans for a buyout in the future?

Matrices
o Large float of 540 million shares with a average daily trading volume of 230000 shares. The float is more than 2000 times its average trading volume, hence the stock is unlikely to see intraday big moves.
+ GSH is trading at just 11 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:


  • New Malaysian Government - With a new Malaysian government in place with the recent election this month, government policies may have an impact on GSH's projects in Malaysia. The new PM, Dr Mahathir has on several occasions criticised on Chinese investments. This may cause Chinese buyers, one of the main target group for GSH's upscale property, to hold back on their purchase.
  • Low liquidity - The trading volume for GSH is generally quite low. There are a number of days in the past three months when no stocks are traded in the entire trading day. Buying and selling the stock without losing too much to spread may be an issue.

After a long streak of weeks without potential superstock, we are finally back with a potential superstock candidate, and the company is NL ...

Weekly Superstock Scan 21 May 2018 - 25 May 2018: NL Industries, Inc.

After a long streak of weeks without potential superstock, we are finally back with a potential superstock candidate, and the company is NL Industries Inc (NL).




NL is primarily a holding company with a majority stake in CompX International Inc and also a non-controlling stake in Kronos Worldwide, Inc. Both CompX and Kronos are listed companies on the NYSE.

The structure of NL is complex. Valhi, Inc held approximately 83% of NL's outstanding common stock. NL in turn owns the following:
  • 87% of CompX - CompX manufactures mechanical and electrical cabinet locks and other locking mechanisms used in the recreational transportation, postal, office and institutional furniture, cabinetry, tool storage and healthcare applications, and also stainless steel exhaust systems, gauges, throttle controls and trim tabs for the recreational marine and other industries.
  • 30% of Kronos - Kronos is a leading global producer and marketer of value-added titanium dioxide pigments, or TiO2, a base industrial product used in a wide range of applications
  • 14.4 million shares of Valhi - This is confusing since Valhi owns 83% of NL and yet NL still owns shares of its parent company.

Technical



NL was trading in the $14 region from end 2017 to the beginning to this year. In February, price fell steeply to trade in the $8 region. Last week, price broke above the range to close at $9.60. The volume of the week was only slightly above its weekly trading volume.

The catalyst for the spike was a settlement that NL agreed to pay to fund remediation of lead paint in California. The settlement of $60 million ended 18 years of litigation. The market viewed the amount as a favorable amount and NL is happy to put the litigation behind it without acknowledging any wrongdoing as part of the deal.

Fundamentals




Including the most recent quarter, NL recorded 7 consecutive quarters of year-on-year EPS growth. 

Recovering Titanium Dioxide Prices

Since NL is primarily a holding company, I will need to analyse the subsidiaries separately. Between Kronos and CompX, Kronos is more likely to provide the catalyst for future growth. Titanium prices have been spiralling downwards for years due to oversupply brought by cheap Chinese competition. But the trend reversed as Chinese competitors failed to compete and exited the industry. 

Titanium Dioxide price recovered in 2017 and is expected to continue through 2018. In 1Q2018, Krono's average selling price was 28% higher year on year.

On the demand side, demand for Titanium Dioxide is expected to increase due to increasing prevalence in modern coating, plastic, glass, paper and other food and beauty products. New found use in solar panels will also increase the demand for Titanium Dioxide.

Stakes Exceed Market Capitalization

As at the end of the most recent quarter, NL held the following shares:
  • 35.2 million shares of Kronos - worth $873 million
  • 10.8 million shares of CompX - worth $158 million
  • 14.4 million shares of Valhi - worth $105 million
Along with $100 million of cash, these liquid assets are worth more than $1200 million. The market capitalisation of NL, however, is just $467 million based on the current price. NL has minimal debt, so the differences between the assets and the market capitalisation is the potential liability on environmental remediation and related costs. 

NL formerly manufactured lead pigments for use in paint. NL and other manufacturer have been named as defendants in various legal proceedings seeking damages for personal injury, property damage and governmental expenditures allegedly caused by the use of lead-based paints. 

NL does not believe that they have incurred any liability except for County of Santa Clara v. Atlantic Richfield Company, et al, which was the case described earlier. This case caused the value of NL to be heavily discounted as the likelihood of loss is high and yet the amount of loss cannot be estimated easily. Hence, the $60 million settlement reached last week is indeed great news for the company putting a close to 18 years of litigation and the amount is probably way less than what the market discounted NL for.

Matrices
o Small float of 8.25 million shares with a average daily trading volume of 50000 shares. The float is thus 165 times its average trading volume.
+ NLis trading at just 6 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:

  • Litigation - While the case of Santa Clara is finally resolved, other CA counties or even counties in other states may file new cases against NL. While the probability of losing the case is small for NL, any loo can have a material adverse impact on NL. Certain properties and facilities used in their previous former operations are the subject of civil litigation, administrative proceedings or investigations arising under federal and state environmental laws and common laws. They have accrued more than $100 million for the environmental remediation and related costs. NL has estimated the upper limit to be $154 million, excluding certain cites that they cannot reasonably estimate the range of costs. 
  • Cyclical Titanium Dioxide Price - The Titanium Dioxide market is a cyclical market. Having seen big gains in 2016 and 2017, it can possibly have a downturn in 2018 like what happened in 2014. Also, the cost of the raw material used to produce Titanium Dioxide is increasing. Despite Kronos owning some mines for the raw material which can offset some of the impact of increasing raw material cost, there will still be some impact on the margins of Kronos.





This is the third consecutive week that I cannot find any potential superstock to blog on. Will we see a prolonged superstock drought? I do ...

Weekly Superstock Scan 14 May 2018 - 18 May 2018: Nil

This is the third consecutive week that I cannot find any potential superstock to blog on. Will we see a prolonged superstock drought? I do not know the answer but based on the scans this week, I would think it is unlikely and we should see the next potential superstock coming out really soon.



After the technical scan this week, I would have thought that we will see more than one potential superstock this week. A total of 9 stocks passed the technical scans - 8 from the US and 1 from Singapore, which is a high number by any week's standard. They are CMFN, CRHM, DF, EMMS, GDP, MCBC, NGVC, PRPH from US and Yoma from Singapore. All except MCBC passed the fundamental screen. However, there is a no catalyst for the spike in price and it is in the financial sector which is not a sector that produces superstocks.

That is it for this week. While I cannot find potential superstock for the past few weeks, I have been keeping myself busy by studying Al Brook's books on price action. I am seeing potential on how bar by bar price actions can gel in with my long term superstock investment as well as my crypto trading. Ideally this will help me manage my trade better.

Once again this week, there is no potential superstock of the week.  Potential superstocks are few and far between this year that I will be ...

Weekly Superstock Scan 6 May 2018 - 10 May 2018: Nil

Once again this week, there is no potential superstock of the week.  Potential superstocks are few and far between this year that I will be happy if there is at least one potential superstock per month. I still do blog about superstocks here and there but most of the trading ideas did not turn out well. 



For superstocks, we are looking for very large gains while the probability of a single trade may be less than 50 per cent. For this first half of the year, my gains are mostly from BXC, which tripled within a couple of months after a blogged about it. Another of my superstock from last year, FANH, which I am still holding, provided me with the rest of my gains this year.

The risk to reward ratio of superstocks are so large that even though most of the time I may not be able to find potential superstocks, it is still worthwhile to keep as an investment strategy. If the superstock drought continues, I will consider expanding to other markets such as the Hong Kong market or Japan market to source for potential superstocks.
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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.