A reader asked me how do I filter the stocks to buy. It's not easy to answer.
To make it short, I don't have a systematic way when it comes to selecting a company for investment.
I'm
not sure whether there is any established or better way to select or
filter from a list of close to one thousand listed companies.
Basically, I have done it in many ways and I'll briefly discuss about them here.
First, I'll start with how I come to know a stock.
Screen through every single companies painstakingly
This
was the method I used when I first joined the stock market back in year
2005. At that time, internet information was scarce.
There
was a thick book like a "Yellow Pages", which contained the information
of all the listed companies in KLSE such as the business nature,
historical revenue/profit, financial ratios such as EPS, ROE, PE ratio,
debt/equity, as well as historical price chart.
I can't remember the name of this white & green colour book now as I have lost it many years ago.
Before
I bought my first shares, I read a few investment books and I decided
to follow their suggestion by looking at the fundamentals of the
companies. So I made a stock selection criteria of ROE >15%, EPS
growth >15% for at least 3 years & PE <10 .="" div="">
With
these criteria, I screened through every companies in that thick book
one by one. At last I came out with a few companies that matched the
criteria. I still remember that the first 2 stocks I bought were Mahsing
& WCT, and I made a profit from them.
Anyway,
that kind of book is not published anymore due to the abundance of
information which can be easily obtained on the internet.
Use KLSE Screener
Many
years ago I came across this tool. I'm sure that most readers know what
is it all about. You just need to key in your selection criteria (PE,
ROE, DY, EPS etc) and the software will filter for you.
This
is very easy and fast, and you can do it on your computer or
smartphones. However, I seldom use it and don't really use it to select
stocks since I started this blog.
From articles and news
Basically
I do not actively look for a stock to buy, as investing in stock market
is not a big part in my life, yet. I am quite passive.
I
don't read business news and watch the stock market everyday. I do it
sporadically when the interest comes and when I have the time.
You
know, there are many articles that promote a stock in investment forum
such as i3investor, some are very good and some are not.
When
a company secures a contract, reports good profit, ventures into new
business or encounters headwinds, the news will certainly appear on
online news portal such as The Star, The Edge and for Chinese, Sin Chew
& Nan Yang.
If
the headlines of an article or news catch my attention, I will read
them and sometimes it will lead me to study the company and then invest
in it.
Analyst reports
I
have trading accounts with Public Investment Bank & Hong Leong
Investment Bank. However, I do not login to view all the reports because
I only login when I plan to trade.
I read those analyst reports from i3investor, thanks to all the people that share them there.
Analyst
reports are a very important and useful tool for me. There are many
information that retail investors like us have no access into. So, we
need to depend on professional analysts who attend the company's AGM,
investor briefing session or interview the management.
Regarding the target price derived by analysts, just take it as a reference and come out with your own target price.
Of
course different people have different opinion, and no one can predict
the future with 100% accuracy. For Bumi Armada as example, someone gives
it a target price of 10sen, while some value it at 56sen. That's a huge
difference.
Now that Armada is at 26sen, who do you want to follow?
Quarterly Financial Reports
A listed company must release financial report every 3 months, we can get a lot of information from it.
Besides
the revenue & profit, we can have a glimpse at its latest balance
sheet & cash flow. The management will also explain the performance
of the quarterly results and give a prospect of its business.
When
a company has a good financial quarter, sometimes it catches my
attention to further study it, IF I happen to bump into it as I only
read 10-20 of those quarterly reports every 3 months.
I think this is a very common way for me to identify a stock to buy.
Before 2013, I only looked at the revenue and profit, EPS, ROE & PE ratio while making a decision.
After
that, I include the balance sheet and cash flow, although not in a very
detail fashion. I don't have accounting background, and have no one to
ask except Mr Google when I have doubts.
I don't read annual reports unless from my invested companies or companies I plan to study.
There
is another way that can help me to find a good stock which I haven't
use yet, which is subscribing to fundamental-based "Sifus" or other
experienced investors.
I
know that it might be a very good way to earn quick bucks from doing
this. Many newbies and speculators pay the fee, and will surely buy when
a stock is recommended as "buy call". This might push up the share
price and quick profit can be made just like that.
Subscribing
to such service can increase my chance of catching a stock with good
potential, as I mention earlier that I'm quite passive in stock market
and can't screen through all those listed companies and read all the
announcement by myself.
At the moment, I still haven't join such groups. I'm still all alone.
How do I filter those stocks to decide whether to invest in them or not?
There
are no strict rules now like I used to have in the past. Last time I
set criteria for EPS growth, PE ratio, ROE, D/E ratio, DY etc. I usually
don't go deeper into ROIC, FCF, PEG ratio & EV as I'm not a true
value investor.
Let me show a few real examples of how I bought a stock in the past, if I still remember them correctly.
Latitude Tree
I
first noticed Latitude after it released a very good quarterly results
in Nov 2013. Then I studied its previous quarterly reports, annual
reports and company website. I checked its previous announcement from
Bursa Malaysia website. There was no analyst cover and not many news on
this company. I found out from Bursa announcement that it was in the
process of acquiring the remaining shares of its very profitable Vietnam
operation. I projected the future earning and it's a no-brainer.
Inari
If
my memory serves me right, I first knew about Inari from a news article
in Jun 2013. At that time, Inari was still a small little-known company
and had proposed to acquire much bigger Amertron of the Philippines. It
certainly caught my attention and the same process started. I checked
its previous quarterly & annual reports, previous Bursa
announcement, searched for online news and visited the company website.
I
remember that before I bought Inari shares at around 70sen (22sen now
after adjustment), its share price has just rallied from 30-40sen to
70sen in a short period of time. Most investors commented that since it
had already gone up 100%, it was very risky to buy at that time. I
bought it anyway. Sometimes we have to ignore the noise of forummers and
believe in our own judgement. Inari proves to be a big success for me.
KESM
I
came across an article or news shared by someone in i3investor about
KESM in Jan 2016. It looked good to me and I decided to study it
further. I saw that there was significant jump in its latest 2 quarters
and by simple forward PE estimation, it was deemed undervalued for me.
At that time its share price was falling from RM6 and I got it at RM4.80
and then around RM3.90 when it dropped further, with average price of
RM4.42.
It's
lucky for me that its financial performance were good and share price
kept increasing to over RM22. I sold some at RM20 and the rest at only
RM8+.
Geshen
I
can't remember exactly how I came to know this company, which was a
very cold and unknown company. From my record, I bought its shares on
Mac 2015. I think may be from its previous quarterly result announcement
in Feb 2015 which showed a significant jump in its net profit. It's not
a very exciting result but I found out that it has just disposed its
two loss-making subsidiaries and planned to acquire a growing
profit-making peer. I felt that it would start a new page of growth and
bought its shares. It was a great investment for me.
YOCB
This
was just a coincidence. I was studying a company with a name of
Yokohama in Aug 2013. When I searched for it in Bursa website, I saw
another company alongside it with a strange name of "YOCB" which
attracted my attention. That's how I started to study this company out
of curiosity. I bought it because of its low PE ratio and good dividend.
It was not a bad investment for me though I might have sold it too
early.
Tambun
This
is easy. I bought my first property from Tambun Indah and I certainly
knew it well. As I was more focused in property investment at that time
between 2008 and 2013, I knew a lot of other property companies and
their projects.
At
that time Tambun bought a vast landbank cheaply at Bandar Tasek
Mutiara, which is located at Seberang Perai Selatan of Penang. We know
that the nearby Batu Kawan is the next big thing. New projects were
launched aggressively and each of them was rapidly sold out. So, it's
also a no-brainer during such a property boom.
Huayang
Not
every property stocks I bought at that time made money. Of all my
completed buy-sell transaction up to today, the largest loss was
Huayang, followed by Tropicana, both are property stocks. Huayang needs
no introduction to investors at that time. Its revenue & profit was
growing steadily, gave away mouth-watering dividends and multiple bonus
issues.
I
felt like I missed the boat and always dreamed of owning its shares.
Finally I became its shareholder in Sep 2014 at RM2.32, the price level
which later proved to be at the peak. Even though subsequent quarterly
results were good even with EPS of 11sen for 5 consecutive quarters, its
share price just didn't go up but continued to drop instead. If we give
a PE of 10x the share price should be at least RM4. Finally I cut loss
at RM1.83 after 1 year and 4 months. Property was in the negative trend
and we could not beat the trend.
PPHB
I
found out this stock after it released its FY19Q1 results in May19. The
result was nothing spectacular, just that the market gave it a low PE
of around 5x. After studying it like usual, there seemed to be slow
growth in this company and I believed that its products have more demand
nowadays. I bought in May19 and only in the end of 2019, the stocks
price started to jump.
I
would say that most of the time I find a company to invest through its
quarterly financial report, while PE ratio and growth prospect are the
main things I look at to decide whether to invest in it, although the
debt ratio & simple cash flow still play a part.
So, how should you filter or select a company to invest in? The answer is read more, and do your own homework.
http://bursadummy.blogspot.com/2020/06/how-do-i-choose-stock-to-buy.html
