Keep on trucking

6:45pm  Tuesday 7 December 2010

By now, everybody reading this blog should be convinced that stock prices do not go up in one straight line.  I observed from many of the comments when the market was falling that many were nervous about their losses.  Today, after 4 trading days of the market rising, we see another down day today.  While I am constructive in the market, I think the market is always vulnerable to profit taking. The market may drift lower again tomorrow, but I hope traders put any decline in perspective – something I always harp on.

What recent the price movements tell us is that we should have conviction in what we buy or sell.  I cannot but always stress that investors should enter the market at prices where they feel comfortable.  By that I mean, a buyer of stock should not think that a stock will go up immediately after he or she takes a position.  The more important consideration should always be the relative value of a stock at its current price.

I, for one, used the downturn in November to evaluate what I should be buying.  When I felt comfortable that the prices were at levels that were of good value, I began to buy what I felt were strong buys.  These were DMC, JGS and VLL.  I have strong conviction on these stocks for a very fundamental reason – their earnings prospects.  One thing to remember is that the stock market is always forward-looking, so prospects are usually more important than historical earnings.  Of course, one should not ignore track record because the value of a company is surely determined by its ability to deliver earnings.

At this juncture, I believe that if one is to buy stocks, he or she should be buying for values to be achieved in the first quarter of 2011 already.  I do not think quick trades will be easy in the coming days as the market thins out.  Nevertheless, I think the next few days should present buying opportunities on stocks with very good prospects as well as some old favorites.  For example, BPI and AC are in very decent price levels.  These are not high growth stocks; but because they lagged the market a lot in the past 3 months, they could do a catch up.  SMPH is another stock which is conservative but could deliver good price appreciation together with SM and SMDC.

Among the power producers, I believe EDC will continue to head higher while AP may be coming to some exhaustion in tandem with AEV.  That does not mean that AP and AEV will start a reversal.  I think that they will not move as fast anymore.  The stock that I think has a lot more kick in it would be SCC because of the prospect of higher oil and coal prices.  A strong SCC translates to good performance of DMC as well.

One should also start looking at some of the laggards like FLI and ALI because they could be good trading prospects over the next few days.  In the property sector, my best recommendation is VLL as a value stock while I would look at SLI due to its follow on offering.  There were rumors earlier that this will not pull though, but recent information tells me otherwise.  SLI raised money from debt to fund some projects, but the offering will go ahead as announced.

I will wrap up by suggesting a review of trading action over the past year.  It was a good year for many who have been persistent followers of the market and good opportunity seekers.  I think persistence is key to finding these opportunities, so keep on trucking.