NeraTel: BUY. Target price $2.00.

Some people ask me if it is still a good time to buy into NeraTel. Since I was willing to pay 70+c recently for its stock, it must be a good idea to buy at the current price too, especially when a dividend of 2c has just been declared, right?

I think some people got me wrong. They have to understand my motivation for being invested in NeraTel in the first instance. It is primarily for income. For income? Yes, I added to my long position in the stock in a big way not too long ago because I was looking for a non-REIT to become a bigger part of my investments for income. NeraTel fits the bill.

"So, the 10x increase in my long position in NeraTel stems from a need to look for alternative investments which are high yielding but with a low or zero probability of being affected negatively by interest rate hikes." Source: Motivations and methods in investing.

As I revealed, I first got into NeraTel not at 60c or 63c. I first got into NeraTel at 40.5c. I know people who got in even lower. I didn't do much by way of due diligence back at 40.5c. So, it was a smallish position. I just bought and held.

Due diligence in June confirmed that:

"This is a net cash company and has a record of paying consistent and meaningful dividends. Its last payout was 4c a share with an EPS of 5c. At today's closing price of 61c, we are looking at a dividend yield of 6.56% which is very decent. With its recurring revenue streams, dividends are probably sustainable." Source: Which stocks have I been accumulating in June 2013?

Now, at 80c a share, with a DPS of 4c, we are looking at a dividend yield of 5%. That is still pretty decent for anyone who is investing for income but I don't think of it as extraordinary. I think of it more as ordinary. So, in my opinion, it is a fair price. Not expensive but not cheap either.

Then, why did I buy at 70+c? Regular readers might remember that I did that only to restore my long position after a partial divestment at 84c earlier. I did not end up with a long position bigger than what it was prior to that partial divestment. This is consistent with my primary motivation to have NeraTel contribute meaningfully to my passive income. The gains from trading was a bonus.

So, do I not think this is a good time to buy more of NeraTel's stock? Weren't NeraTel's results good? Don't I think NeraTel will be able to deliver on their KPI of a 100% growth in profits over the next 3 years?

Paraphrasing my recent comments on my Facebook wall (https://www.facebook.com/assi.ak.9), I think the results are good. It is a good business to invest in. However, with the share price being where it is, anyone buying now is buying into a belief that the company will do even better in future. Much better. This is not hard to believe but there is, obviously, a risk that we could be wrong.

3 years although not long is not short either. Many things could happen in 3 years. If 100% growth could be achieved, this stock should be worth $2.00 by then. $2.00? Yes, this is just a back of the envelope estimate.

How do we balance the history and the future of the company? Looking at past performance is easy but to look into the future with accuracy? That is definitely not easy. However, this does not mean that people will not try to do it and there are many BUY calls with their own target prices and fair values for the stock. We have to remember that all these are based on expectations.

Although Mr Market is able to accept much higher PERs for growth stocks, if NeraTel should disappoint, Mr. Market will show his displeasure very quickly in the usual way. So, what are the downside risks?

If someone is still wondering if he should be investing in NeraTel at current prices, very importantly, ask what is his motivation for investing in the stock. The investment is a good fit for my motivation at the prices I got in. If I were not yet invested, I might initiate a small position. Is it a good fit for his motivation?

As I am corrupted by TA, I also said that investing in NeraTel at current prices is possibly not for the faint-hearted and if we look at the weekly chart, it is easy to see why I said that:

Now, no chartist in this world is able to tell us that NeraTel's share price will definitely retrace to test any of the supports shown by the Fibo lines. No chartist can tell us that NeraTel's share price will not go higher. Heck, depending on one's motivations, charts might not even be relevant!

On that note, happy holiday!

Is investing in stocks suitable for you? (UPDATED: "Some people should not own stocks." Warren Buffett)

Some people say that investing in the stock market is risky. 

Some people say that leaving money in savings accounts is risky. 

So, if we put half of our money in the stock market and leave half of our money in savings accounts, we are doubling our risk exposure. 

No? Oh dear. 

This is what I have been doing. 

I am in trouble, I think.


If you feel that this blog post is beginning to feel somewhat surreal and totally not in AK's style, you are not alone. 

I feel the same way too.





From time to time, I receive emails from readers and, from time to time, there would be a reader who says he has $5,000 or less to invest with. 

The question is usually what should he invest in? 

Personally, I feel that the pertinent question is if he should be investing at all? 

Well, if I had only $5,000 or less to invest with, I wouldn't.

I think the money is better left in an emergency fund. 





It is too little to really make any big difference to a person's financial well-being even if he were to achieve, say, a 10% return a year. 

After 7 years, that $5,000 would become $10,000 perhaps but there is also a chance that he could suffer financial loss in that 7 years. 

There is no guarantee that he could get back his money if he should need it.





Of course, now, we have services like those by POSB and OCBC which will allow such investors to gain exposure to the stock market. 

Matthew Seah, a guest blogger here, has also blogged about these recently.

Reading the latest issue of The EDGE, I came across this:

"Ultimately, the most important thing for investors to know is whether exposure to stocks, in whatever form, is really what's best for them. 

"Banks such as POSB do, of course, inform investors of the risks they would face with any investment products they sell.

"Yet, are stocks really a good investment for someone with only a small amount of savings?

"Is the risk that comes with potentially superior returns really acceptable?

"Can long-term financial goals be achieved through spending less instead of investing more?

"Portraying a portfolio of blue-chip stocks as a packet of crisps isn't helpful to investors who might be searching for answers."





Very pertinent questions, I feel.

This reminds me of a comment by a reader and fellow blogger, hyom hyom:

"I am always attracted to posts that talk about money-saving techniques because successful saving provides a guaranteed return as opposed to investing which is risky by nature."

Although I feel that we should learn about investing as early as possible in life, I agree that investing in stocks, for various reasons, might not be suitable for everybody at one point or another in their lives.

Of course, like Warren Buffett said before, some people should not own stocks at all.





Related posts:
1. POSB Invest-Saver account.

2. OCBC Blue Chip Investment Plan.
3. Know what is good for us.
4. A common piece of advice on saving.
5. At what age to start investing in stocks?