Still a paper chase
11:27 pm 9 November 2010
Finally, the long awaited correction has arrived. Somehow, a continuous rally, no matter how strong, leaves me gasping for air. A retracement of the kind that we are seeing theoretically strengthens the move upwards. Here are some some fundamental and/or technical observations on stocks that I have been following:
AEV – the stock looks to have approached resistance and is forming a double top on the chart at 36. The relative strength index appears to be in the down trend. Being a holding company with a heavy weight on the index, it is important to follow where analysts place its Net Asset Value (NAV). I reckon it to be around 40 from what I have been reading based on the prices of AP and UBP – its biggest holdings. What this tells us is that we must follow this stock until we see some signs of it being oversold, then start accumulating the stock again.
AP – I am seeing an island top forming with a gap between 28.65 and 29.30. The stock has been in overbought levels for quite a while without any sign of consolidation. I cannot help but think that a broad based correction seems to be going on and AP should follow the rest of the market to a certain degree. The stock has more room to go as some analysts are placing the discounted cash flow value per share at 36.13. Some are also estimating 2011 earnings per share to be 3.57 putting PE at today’s close that is only 8.4X. If this stocks moves to below 28.65, we should be ready with some cash to pour into it.
EDC – Consensus 2011 earnings per share (EPS) on the stock is 0.40 which is below the 2010 EPS of 0.44 due to rehabilitation activities to be done at one of its plants. Nevertheless, 2012 EPS is expected to rise to 0.59 which is easily achievable given that electricity supply will be closer to the edge in 2012. Fundamentally, the stock should do well. Unfortunately, it has been undergoing some consolidation already for about a month now. At the close of 5.78 today, I think the stock price has come to cheap levels. While it may slip some more in the coming days, accumulation of EDC at these levels should pay off in a few weeks time.
DMC – This is another stock that will likely remain strong for some more months. I am guessing that because it is looking to be technically overbought, and the RSI is declining, the stock should retreat a bit. My guess is 35 where it will be relatively cheap given some estimates of EPS to be around 3.00 for 2011.
JGS – From a pure technical standpoint, JGS looks to me a good buy at these levels. The RSI measure is gradually rising while the price has been steady. It is pushing against a resistance at 26, and I am guessing that JGS can break through. From a fundamental standpoint, the cash which it generated from the CEB IPO should tremendously reduce debt. Given that earnings in portfolio companies such as URC and RLC have very strong showing and DGTL recovering, the NAV of JGS should be moving higher.
The consolidation also makes the old heavies such as AC, BPI, TEL, MBT, MWC, MER and ALI worth a look again. My message remains the same – money is abundant and will continue to chase assets. Those that are able to catch them early will benefit the most.
85 Comments »