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educational blogs |
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THIS IS NOT A TIP OR RECOMMENDATION. I AM NOT A TIPSTER. PLEASE DO YOUR OWN RESEARCH. PLEASE READ THE DISCLAIMER ON THE HOME PAGE OF MY WEBSITE. IF YOU COPY MY TRADES, YOU WILL PROBABLY LOSE MONEY.
Devro DVO is a stock I have invested in before and I note that it has put out some weak results over the last year or so and has got quite beaten up - it is at 3 year Lows so maybe there is Value here and I quite like the idea of having something that is food related (they do Skins for Sausages) in my Portfolio as I don’t really have any exposure here. From a quick glance the usual Investment Ratios like Forward P/E and Divvy Yield etc. look ok, but the big stand out is the Debt - this has shot up in the last year and obviously creates some sort of Risk if it is not manageable. From what I understand, much of the problems (and the High Debt) stem from delays in getting a new Chinese Factory up and running - my hunch is that maybe once the Factory is on stream, Costs will drop and we will see Debt start to fall quickly - if so, then the extra Capacity could give DVO a lot of new Growth Potential and I suspect the Market is totally missing this important point.
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The big event next week is on Monday (tomorrow at the time of writing) and is the first of the TV Debates for the US Presidential Race between Mrs Clinton and Mr Trump. Of course it is very difficult to predict accurately what will happen in both the Presidential Race and the Market’s reaction to it. My current view is that the Markets are expecting a Clinton win and she is the Wall Street Candidate and I suspect a large amount of Bias is making Traders quite blind to the fact that Trump has closed up in the Polls hugely since Clinton’s confirmation as the Democrat Candidate. Trump seems to be capitalising on seeming more ‘normal’ than the usual run of the mill Politicians - his utter lack of Politically Correct language and behaviour is his major attraction to Voters who are sick of the Washington Elites.
One of my mates from Twitter, James @traderdiarycouk, has written the following piece to introduce himself back to the world and give a simple explanation of how he does his Short Term Trading stuff - he is very good at it and even Long Term Investors can learn a lot from the kind of methods successful Traders use.
James used to run his own website as you can see from the text, but time constraints forced him to stop doing it on a regular basis but he still likes putting Fingers to Keyboard and bashing out some thoughts - I hope we will get more stuff from him for the WD Website in coming months. If you follow him on Twitter then you can see the Trades he does and get a better feel for his approach. Many thanks to James for providing this input and I hope Readers find it useful and interesting. Cheers, WD.
I am meeting up with a small group of Investing mates tomorrow in the PUB and won’t have any time to look at the Charts, so it’s Saturday Night Chart Fever again. It sort of feels a bit eerie at the moment - Autumn is nearly always a difficult time for Markets and September particularly so, and there is a real sense of Lull before the Storm. I guess if we are Bullish and optimistic then the Storm might be a huge rise in Share Prices - but after the strong rises since the Brexit Vote and with Donnie Trumpo about to become the Pres, it seems a huge stretch to really think a Rally is on the cards.
Other ways to Value Companies/Stocks
There are a few other ways to value Stocks but probably the only one I use a lot is the ‘Discount to NAV’ approach. I have very rarely used the Price to Sales Ratio (PSR) but I just don’t see any need to over complicate things although many people do seem to use some incredibly complex approaches. Discount to Net Asset Value (NAV) This is an extremely useful and important method and regular Readers (it’s that All Bran again) may have seen me use such an approach with my Buy Rationale Blogs on Quintain Estates QED and Avation AVAP (there are links to these Blogs at the end of this one). I will try and explain this in simple terms - in essence we take the Net Asset Value (NAV) of the Company and compare this to the Market Capitalisation and really we want to see a decent Discount - in other words, the Market Cap needs to be a fair bit less than the NAV.
After the big kick in the goolies that European and US Indexes received on Friday it really looks like we might be at the start of some sort of Pullback in the Bull Run that has been rampant since the Brexit Vote. I hope the Charts can enlighten us a bit more with regard to whether or not this is ‘The Big One’ and with September being notorious for being the worst month, a fairly overvalued Market and a US Presidential Election where both Candidates aspire to being mediocre, it seems highly likely that this is the time to break out the Tin Helmets.
I have Big Shorts on the FTSE100 and Nasdaq 100 as well as a small bit of Cash - so I feel quite well positioned if we do get a Drop.
Trading with regard to P/E Ratios
As I mentioned earlier in the Blog Series, I ideally want to be buying Stocks which are Priced in the Market on a Forward P/E that I think is lower than what it really should be and where the Market has misunderstood a Growth Story or perhaps Oversold a Stock with Problems and not given the appropriate ‘Value’ in terms of P/E Ratio - often with the latter a Company has been in trouble but is in the early stages of a Recovery and the Market has not yet woken up to the improvements. Another great example comes about from IPOs (Initial Public Offerings) - I quite often find that Stocks that are new to the Market are on a lower P/E than they should be - and this creates a wonderful opportunity as the Market wakes up to the Story and gets to know the Stock - I want to be in before the Herd (I have written about this recently in a separate IPOs Blog - I will put a link at the end of this Blog Series).
I am bashing this out on Saturday night rather than the more usual Sunday because tomorrow I am off to the MotoGP at Silverstone and dead excited about the potential for the British Riders after Cal Crutchlow gave us the first British win in the Premier Class for 35 years (since the Legendary Barry Sheene) at the last race in the Czech Republic. No doubt the weather will be entirely unpredictable but with luck it will be dry as Silverstone can be a chilly, windswept, place if the conditions are poor and it isn’t the best place to spectate when it’s like that. But of course changeable conditions make for exciting races - which you can usually catch on Monday Night on ITV4 at 8pm.
As usual I will look at the Historic backdrop, which will no doubt be pretty ugly as September has a bad reputation, and I will look at the Major Indexes that matter - I am really interested to see how things stand after that huge jump up on the FTSE100 yesterday - is it a sign of more to come or simply a Last Gasp rush of the Bulls? The inconsistency here is that the US doesn’t seem to have followed suit. |
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