Sound Global: Long position at 50c

Sound Global's share price is currently at an important support level. This approximates 49.5c.

I am once again a shareholder of the company with a long position at 50c. I bought some shares towards the end of the day when I saw how the support seemed to be holding up.

Make no mistake, Sound Global's stock is in a downtrend but share prices go down a river of hope and hardly in a straight line. Although no one can say that the stock has bottomed, it could be that it has found a floor.

I see a higher low in the CMF even as share price dipped lower. We see a positive divergence. The MFI does not spot a higher low but it has just dipped into oversold territory. We could be seeing some buying activity as the stock becomes oversold with volume increasing today.

A short white candle with a lower wick formed today. Although not strictly a hammer, after yesterday's black spinning top, this is a promising sign that the downtrend has weakened and possibly coming to a halt. This short white hammer is a reversal signal which would need confirmation tomorrow.

Fundamentally, I like the company's business. I am concerned about its higher financing cost but in spite of this, it is still a very profitable company with very good prospects. The selling down of its stock might have been overdone by Mr. Market.

In fact, EPS is likely to improve in 2013 because of a very strong order book. With China bent on improving water and sewage infrastructure, I expect Sound Global to be a logical beneficiary. Trading at a PE of less than 10x, Sound Global's stock is inexpensive.

With the stock currently in a downtrend, however, for anyone buying on dips, adopting a trading mentality could be more rewarding.

Related post:
Sound Global: Lost 17.2% in a day.

Yongnam: Partial divestment at 31c.

Last month, I commented that I was almost sure that Yongnam's stock would hit 31c per share and this has happened sooner than expected. Today, the stock hit an intra day high of 31.5c.

Technically, I have observed that the share price seems to move in bands of 1.5c. So, overcoming resistance at 31c, we could see share price rising to 32.5c and 34c over time.

Fundamentally, it is not so easy to forecast Yongnam's earnings as it depends on the number and value of projects they might capture in future. There really is no consistent recurring income base which can be used.

However, if we were to accept last year's performance as the worst case scenario and be more conservative, at 31c per share, Yongnam is trading at a PE of almost 9x. It is hardly expensive.

If we accept CIMB's forecast of 5.2c EPS in 2013, then, PE is much lower at almost 6x. Definitely inexpensive.

CIMB thinks 5.2c EPS is attainable because previously delayed projects would be ramped up in 1Q 2013. Various landmark projects are also expected to boost earnings in 2013. (See CIMB's report: here.)

Is share price going higher in the next few sessions? The formation of a long white candle on the back of extremely high volume is very bullish. Share price could indeed move higher but because my initial target price of 31c has been hit, I decided to do another partial divestment today.

After all, to sustain the upward movement in price from here, much higher volume is probably required. Is this likely? I don't know but locking in some gains as price action went parabolic seems like a good idea.

Keep an eye on the momentum oscillators. If lower highs form although share price has moved higher, we would see the formation of negative divergences. This would sound a warning bell although it does not mean that share price would decline right away.

Related post:
Yongnam: Investing in infrastructural developments.