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By end of February, I had divested a big part of my investment in China Minzhong, locking in some sizeable gains. The remaining shares which I am holding are from a purchase made in June 2012 at under 60c a share. I can say that these shares are free of cost as the gains from the partial divestments are enough to cover their cost.
If the share price of China Minzhong had continued rising, I would have been quite happy to simply hold on to my remaining investment until a time when I feel valuations are no longer cheap.
However, as all of us know, prices do not go up in a straight line and will climb a wall of worries. So, if there should be pull backs or corrections, I would be quite happy to add to my long position.
Some might say that China Minzhong is now in a downtrend and that it is risky to add to our long positions. So, we should instead short the stock. There is perhaps some truth in this but I would argue that the uptrend which started in early August 2012 is very much intact, that the share price is now merely retracing to a longer term trendline support.
Of course, no one can tell if the share price has bottomed until it has happened. So, why not wait for more clarity before buying more? Shouldn't we wait for the dust to settle?
Indeed, the safer thing to do is to wait for the dust to settle and take action when we can see clearly. However, when everyone could see clearly, it could be too late. So, I am taking a chance here by buying more at $1.025 when I feel that the dust is not fully settled.
Not fully settled? Well, the longer term trendline support will be at $1.00 some one month from now. So, in the meantime, there is some room for volatility and I would not be surprised to see share price dip under a dollar in the next few weeks even. What would I do then? Buy more.
Why am I so confident? I see higher lows in the Chaikin Money Flow as share price formed lower lows. This positive divergence suggests to me that smart money is flowing back into the stock even as share price declines.
This observation suggests to me that although we could see more downside, it could be limited. Even if we do not see a big upward movement in share price in the near future, it could be rewarding in the longer run to buy in now.
Related post:
China Minzhong: Going higher?
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36 comments:
A 2 cents downside risk is acceptable. In fact cmz should hover at this $1 range after dilution but it didn't as Mr market just love the union of these two companies (Indofood n cmz). The market is merely catching up what it suppose to do but didn't do earlier and I am glad cmz price is at where it is now. With this price our downside risk is limited and provide a good entry point for those who miss the boat earlier. AK good post and timing.
Hi seefei,
It could indeed be so. :)
At the current price, we are looking at a PER of about 4x and a 10+% discount to NAV, iirc.
I still believe that investing in food producers is a good idea and China Minzhong's long history, strong track record, experienced management and strong numbers make it a good addition to my portfolio.
The current weakness is an opportunity for me to buy more. :)
Take note that Anson Wang / CEO had sold all his 35M shares in Mar-Apr2013.
12Mar - Sold 16,546,000 @#1.135
18Apr - Sold 15,456,000 @$1.020
Insider sell his shares for various reasons. But Anson Wang seems to sell all his share in 2 months. He hold Zero share now!
Something fishy?
In a correction, take small bites on the way down. :)
Hi RayNg,
Maybe he is building a super big mansion?
If I know why he sold his shares, something is fishy. ;p
Hi Ray,
Buy as close to supports as possible if momentum oscillators are encouraging. This is what I would do. ;)
Hi ak71, always nice to see ur post on FA with TA.. but sry to side track abit. Are u able to comment on stxosv's fundamentals? It has been on a downtrend even though the takeover offer by the italians was failed..
Hi Wei Xiong,
I have an eye on STX OSV actually since I believe that the demand for OSVs is strengthening.
Although many analysts think that STX OSV's stock is now trading at depressed valuations, Mr. Market doesn't care two hoots what we think. Not surprising.
I remember a blogger declaring that the lowest this could go to was $1.22. With a closing price of $1.11 today, it demonstrates the hazards which come with crystal ball gazing in the stock market. I know. I had my fair share. :(
At $1.11, it is not expensive. Some would say it is cheap. I won't say that it is cheap but I would say that it is fairly attractive.
However, the technical picture is very bearish and things could get worse before they get better. I do not see any sign of a reversal on the horizon and more downside would not surprise me.
I will watch out for the formation of higher lows in the momentum oscillators if share price should go even lower. This could take a while or it might not happen at all.
OK, I am keeping my crystal ball now. Oh, it's a bowling ball. ;p
i have a small holding in VARD. I bought because of the attractive valuation and good fundamental. Well, AK u are right again, mr market dont care what we think and i am resigned to the fact that the chart is ugly and there is no basement support. will let go some to reduce exposure and accumulate when the price stabilises.
how i wish VARD is as predictable as CMZ up to this point in time. Still MPM is solid holding its price so well despite the doom & gloom in the O&M market.
Hi seefei,
Sometimes, we hear people talking about "value traps" and how to recognise them. Instances like VARD gives a new spin to the phrase because they are traps due to weak technicals.
As investors, we want to buy undervalued stocks but if sentiments are very bearish, these stocks could become even more undervalued. Unless we have unlimited funds to keep averaging down, taking a look at the charts is probably a good idea. :)
Traps can work both way. When we worry and sell thinking that papa bear is round the corner, market turn and leave yöu in its trail like what Genting does today.
Btw cmz had a sharp decline and rebounded this morning.
not too sure about CMZ, quite a bit of volatility + selling pressure persists
looks bearish and price seems to be testing key supports.
i wonder if buyers have the courage to enter?
collected some $1 today but it's definitely one of my less confident trade i made.
Hi seefei,
Indeed so. That is why there isn't any fool proof method available to the investor. FA and TA together could complement each other but even this combination isn't fool proof. Even WB loses money sometimes. ;p
Hi Sanguine,
For sure, we cannot tell how things will turn out.
We can only make our best educated guess. Good fundamentals and promising technicals? Good enough for me.
If things don't turn out the way I think they ought to? Well, too bad for me.
Are the facts I based my reasoning on correct? Is my reasoning for investing in the stock still sound? If the answers are "yes", then, I don't have to worry. :)
Hi AK
CMZ has traded below $1 for the last few days. May I know if you have been adding to your portfolio? Or have the charts turned bearish??
Elaine
Hi Elaine,
CMZ's chart turned bearish on 27 March with the formation of a lower high. I bought at $1.025because I spotted a positive divergence between price and CMF. This divergence is still valid.
Immediate support is at 96c. Will it hold or will it break? Your guess is as good as mine.
I am quite comfortable with adding to my long position here but if you are not comfortable, don't buy. Peace of mind is priceless. :)
Thanks AK!!
I love the story behind CMZ... but is still learning to read the charts (which is totally mind boggling to me)!
Hi Elaine,
Fundamentally, the stock is very cheap. :)
Technically, the support at 96c is crucial and I think Mr. Market knows it too. ;)
Thanks, AK!
I managed to nibble a little at $0.965!!
With rats and foxes disguised as mutton... vegetables sure sounds like a safer bet! :-)
Once again, thanks for sharing!
Hi Elaine,
I got some at 97c. You got a better deal. ;)
Hi Caleb,
Technically, $1.265? That was the high of 1 March 2013.
Fundamentally, a PER of 6x will give us a fair value of about $1.50 per share.
Call me irrational but I cannot help but feel that China Minzhong's stock will be trading higher in time to come.
bullish reversal on high volume today...
insiders might already have news on the upcoming results release next monday
should be positive results... let's wait and see
Hi Sanguine,
Oh, I feel quite positive about China Minzhong's fundamentals. It would surprise me if the results come in below expectations.
Hi Caleb,
Indeed, riding the trend is a good idea. The trend is our friend or so the saying goes. :)
Many people are questioning the durability of the rally and you are right in that Mr. Market could pounce on any reason to sell. So, caution should be exercised.
Then again, as long as we have people who do not believe in the rally, the rally could go on for a while more. :)
Hi AK,
With Good results expected to be release on Monday, I guess the price will climb, so at what price Technically do you reckon it is good to Fully divest CMZ
Hi MaxiBom,
I don't think my TA skills allow me to see what you are asking for. :(
I can only say that the high of $1.265 will probably be an important resistance level if tested. :)
Indeed, if let's say the resistance is broken or even tested. The dilemna of milking the cow or slaughtering the cow will come, but it is a good problem. Thanks AK
Hi MaxiBom,
I am quite sure that testing $1.265 would bring out the sellers.
Whether the bulls are strong enough to mop up all the selling is something we cannot tell for now. ;)
Hi Caleb,
Just click on "Contact AK" in the header of my blog. ;)
Drop 5% since market open despite good results.. time to buy in?
Hi MaxiBom,
It would depend on your own beliefs and strategy. ;)
Hi AK,
The price has retreated somewhat since the shorting saga. Has your outlook changed for this stock? Consider good price for entry? Appreciate your comments. Thanks much. Bud.
Hi Bud,
If we believe the audited numbers, China Minzhong is a good investment. :)
Personally, I have enough excitement here to last me a lifetime. Rather not be reminded of this stock. LOL.
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