I was reading The Straits Times online edition. Yup! AK71 is catching up with the Times! I love this pun!
There is an interesting article by Andy Mukherjee titled "Don't get seduced by analysts' darlings" and he selected four stocks as examples.
Andy is of the opinion that "analysts are overly bullish. They are beginning to turn nervous, but are far from throwing in the towel."
He also said that "for choppy markets to get better, sentiment must first hit rock bottom. Like it did in the first quarter of 2009."
Stock #1: Noble Group
"Analysts are still wildly bullish about Noble... (with) consensus estimate for the stock (suggesting) a 35 per cent upside.
"Noble shares fell more than 80 per cent between June and October 2008."
Stock #2: Indofood Agri Resources
"With the hiving off of Salim Ivomas Pratama, .. the company is sitting S$860 million in cash, with little clarity from management on future expansion. Meanwhile, the profit accruing to Indofood shareholders grew less than expected in the June quarter... The consensus estimate for the stock's target price is about 33 per cent higher than the current price."
Stock #3: Genting Singapore
"Chip volumes declined 13 per cent from the previous three months... Overall, though, the analyst community is still gung-ho on Genting... (and) the consensus target price is still 28 per cent higher than the market price."
Stock # 4: DBS
".. local currency interbank rates in Singapore... have collapsed. One key rate - the swap offer rate - has even turned negative.... The consensus in the analyst community, however, is that DBS Group's fair value is 28 per cent higher than what the stock currently sells for.
"If the Singapore economy slips into a technical recession this quarter and loan growth slows markedly, then the lingering optimism on DBS could dissipate. That could be risky for investors.
"For now, the cash in your mattress is quite safe where it is. If you really want to do something with your money, consider stocks with high dividend yields."
I do not think staying in cash 100% is a good idea since Mr. Market has a way of surprising us sometimes. Will we have a recession for sure? What if markets simply continue to trade sideways while inflation rages on?
Even famed New York University economist Nouriel Roubini, a perpetual bear, puts the risk of a double dip recession at 60 per cent probability and not anything closer to 100 per cent certainty.
The more we expect something to happen, the more it might not happen. So, without perfect knowledge, the best strategy, in my opinion, is to have a warchest ready even as we stay invested.
Oh, I am not vested in any of the above stocks.
Related posts:
1. Should we be staying invested or in cash?
2. Sleep well at night with a plan.
3. Stock market analysts.
4. A capital question: How much to have or how much to use?
5. Investing in REITs: A flawed strategy?
6. Dr Marc Faber: How not to lose money?