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ARA: A trading buy?

Tuesday, October 4, 2011

2,531.02/-90.38/-3.45%
I remember reading an article recently in which Warren Buffet said he has his elephant gun ready and will scoop up undervalued companies if they should present themselves. With so much fear in the air and likely to get worse, we should do the same.

Do not feel fearful when there is so much fear in the air. Instead, get ready to load up on cheap stocks which, by the way, could get cheaper.

One company which I am eyeing is ARA Asset Management. By all accounts, this is a great company to invest in but at the right price, of course.


ARA is in a net cash position and has a net profit margin of 53.6% according to its 1H 2011 numbers! Yes, net margin, not gross! It also has a yearly dividend payout of 4.8c per share which seems sustainable.

NextInsight has two recent articles on ARA Asset Management. So, I shan't say more. Read: ARA Asset Management: resilient earnings, super high profit margins and steady dividends.

We have identified a good company to invest in. The question is what is a good price to buy at or when should we start buying?


On 23 Sep, I initiated a long position at $1.22 per share. Then, I said that although ARA is "a fundamentally sound company, its share price could weaken further from here. It might be a good idea to wait for the dust to settle before adding to my newly created long position." See blog post here.

On 26 Sep, I decided to add to my long position at $1.13 and these shares were divested on 29 Sep at $1.20 for a quick trade. Recognising that price could rebound before weakening again, the long position at $1.13 was more for a trade anyway. I was lucky it turned out nicely. See blog post here.

So, has the dust settled? It doesn't look like it. The MACD has continued its plunge deeper into negative territory as long black candles formed two days in a row on the backs of high volume. However, shares of ARA could be a trading buy. Why?


If we look at the Bollinger Bands and the MA Envelope, we will see that ARA's share price had in the past rebounded if it should break the lower limits. The rebounds tested and broke the 20dMA which acted as a weak resistance. The 50dMA then stopped the share price from moving higher. Could this happen again?

I added to my long position towards the end of the trading session today at $1.04, $1.035 and $1.03. If price should rebound to test resistance, I will offload these shares for a quick trade.  If price should continue to weaken, expect the next supports to be at 98c and 95c.


Looking at the weekly chart, it is clear that stronger support is at 89.5c. This is followed by 61.5c. If these supports should be tested, it will be some way to fall from the current level.

1H 2011 presentation slides here.

12 comments:

Leo78 said...

AK
Instead of single scoop, why not cast a net? Is ETF in your radar as well?

AK71 said...

Hi Leo78,

If by casting a net, you mean to look at more than one stock, yes, I am doing that. :)

Nope, never look at ETFs. I am somewhat slow when it comes to ETFs.

Calvin said...

AK,

Interesting look at ARA management, I never looked at it before. Never occurred to me to buy the REIT manager instead of the REIT. Looks like a good stock to own. However, Dividend yield is still below 5%. I think I might wait a bit before moving in.

Calvin
http://www.investinpassiveincome.com

AK71 said...

Hi Calvin,

Since you find heavily discounted rights issues distasteful, being a shareholder in ARA could be a better option for you than being a unitholder in REITs.

A 5% dividend yield would be nice. :)

INVS 2.0 said...

Hi Ak71,

Yet another good use of the TA. I am at loss once more again. :D

Hope you can consider writing a few blog posts on the TA and create a sidebar category catered for this. There is already a FA category.

AK71 said...

Hi INVS 2.0,

There are many good blogs out there which use only TA. There are also many good blogs out there which use only FA. Some blogs like mine have a mixture of both.

To tell the truth, the three blog posts I did on FA were in the early days of this blog when I was more concerned about having daily posts.

These days I am not as bothered if I did not have a blog post for a few days in a row. Today, I would not bother with doing posts like those three because Investopedia and sites like it are doing such a good job already. :)

This blog post on ARA shows TA done using Bollinger Bands, MA Envelope, Trendlines and MAs. Read them up on Investopedia and I am sure you will know what I was doing.

Always bear in mind that TA is about probability and not certainty. Things could always go awry.

Simple rules... said...

Well, my 2 cents worth...

# 1 invest with money that you are willing to lose, otherwise dont.

#2 Any company or business that has large assests such as ARA or Ascott Reit.. or even SIA engineering, is worth buying especially if the price falls below their Nett Assest Values

#3 In ARA case, if it falls below $1, you can be sure I will be buying.. in fact i have bought 5,000 already at $1.06.

Sometimes I look at the share price and compare 2 different stocks, totally different industries. Take KepCorp and OCBC
both around $7 plus.

I ask myself:

which one should I invest my hard earn savings? $7,500 on a bank or on a conglomerate? would it be a difficult decision?

that depends on the trend and potential of each.

Not science, not mathematics, not statistics.

Next question is:

how long can i hold them for? would I need $7,500 in 5 years' time? What would be the 1st half year dividend like?
Since their business is already running and contracts completed.
Maybe no dividends at all!

Last question:

would there be a sudden interest in these companies?
and what could be the potenial gains? 10% price increase within 6 months? 12 months? and compare putting $7,500 in maybank that will pay 1% (promotional rates) in 12 months.

Simple, no science approach.
It seems to have worked though!

I am still holding on to SGX that I bought at $1.70 and SembMarine at $0.75cts...

... ok, I sold half of what I held and I am still holding on to the other half.. at very high prices.. so.. the shares are FOC.. and collect dividends like a pig.

Will I sell?.. Nah!.. wait for ammagedon.. no loss to me.. though some people say: why not sell the whole lot?..
would you sell?.. its up to you!

FoodieFC said...

Hi AK

I am waiting for it to drop below $0.70 =)

but if it drops so low. tt means the rest of the portfolio I have will also drop alot.

AK71 said...

Hi Simple rules,

Thanks for sharing your point of view. :)

AK71 said...

Hi FoodieFC,

70c would be a great price to get some ARA shares, based on FA. ;)

blazingruby60 said...

hi AK
In these days and times i still use a broker to buy shares ..yes, pay $25 upwards.. lately,that securities firm started 0.12% on broker comm if I were to start a savings acc linked to their trading platform. Only catch, i have to deposit my shares with them moving away from cdp.. I am so new to all this ..how does anyone trade out there? i really like to pay less for commission now that i am moving towards retirement. any advice?
thanks..and cheers..

AK71 said...

Hi Ruby,

You are basically pledging your shares to your broker, I believe. Unless you trade a lot and in large quantities, I don't think the savings will amount to much. ;)

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