19/07/2021
Many was asking about Recovery Stocks for 2021. FYI, the Recovery Stocks can be divide into two big categories:
a) Recovery from Major / Minor Economic Cycles - Recession / Economic Crisis / Financial Crisis / Short-Sell of ETFs / Short-Sell of Gold / Credit Crisis / OPEC Oil Shock / Minerals Shortage / ... etc
b) Recovery from Isolated Event or Triggered Issues - Political effects / Change of Board Directors / Lawsuits / Lost or Abortion of Contracts / Bonus Issue / Right Issue / Private Placement ... etc
For a), it is easy to spot the primary key sector of the overall economy, which is the Financial & Banking Sector when Recession occurred and will be Recovered when the economy is getting better.
It is due to FED / Central Bank will reduce OPR, which results in the bank earning fewer interests from all borrowings such as Mortgage / Personal / ASB / Education / Hire Purchase / Overdraft / Credit Card ... etc. Besides, the bank is also expected a lot of late repayment or BNM will also issue Moratorium / Financial Relief Scheme / Repayment Assistance ... etc
It creates a chain effect to REIT / Real Estate Industries where collateral ties to the bank mortgages, e.g., Premises / Properties / Houses / Business Centre will be evaluated at a lower value during a recession. Another issue is many sales auctions conducted by the bank may not cover the outstanding amount that borrower owes to the bank. So the action that the bank will be taking is to write off or to compel the borrower to cover this shortfall.
The bank will compensate with another type of asset such as Hire Purchase / Credit Card / Personal Loan with no reductions for the interest rate. The cap for the highest chargeable is rated at 15-18% P.A. Since many will repay late, and the bank will still earn money by charging a penalty fee. Moreover, many people will spend future money, which results in a higher outstanding balance with their Credit Card, which also benefits the bank's income by charging interests to the outstanding balance. It will be a compounding effect over time!
Next, another recovering sector is Consumer Goods Stocks, which can be derived into Consumer Staples & Consumer Discretionary.
Consumer Staples are those F&B, household Essentials, and daily needs, eg: Nestle / 7-11 / Aeon / Mr DIY / Ajinomoto / QL manufacturer conglomerate such as BERJAYA FOOD where it consists of KennyRogers / Starbucks / Jollibean ... etc.
Consumer Discretionary is classified as non-essential consumer goods and services to function in society. Type of industry will be clothing, media, jewellery, resorts & travels, etc.
Next, REIT. Retail malls income is not just collect a fixed rental from business tenants. By reviewing in the Turnover Rent, it can be formulate as below:
Base Rent + Service Charges + Promotional Charges + % of Gross Sales = Rental Rates
In other words, the monthly rental rate for mall spaces will depend on monthly profits made from sales, and list of promotions that had been carried out, services offered, and minimum rent agreed by both parties. The management will have access to monthly financial records or can audit invoices and reports. The better the business of an outlet inside a shopping mall, the more the mall manager earns.
Another Spillover effect that can be happens when the economy recover is confirmed. People will starts getting new cars; the effective counters are SOLID, DRBHCOM, CCB, TCHONG, BAUTO .. etc. Uptaking in revenue, profits and EPS is confirmed, which can pump the stocks to true bull with stock price up.
Real Estate sector might have good effect when people start buying properties; the effective counters are SPSETIA, MAHSING, ECOWLD, MATRIX, IOIPG .. etc. This sector will recover after sales slumped during an economic recession. However, for this sector it has another issue on top of overhang or oversupply is affordability. Due to the generation shift, the new generation will not consider owning a house, and they love mobility. Instead, they put their money somewhere to generate a passive income such as investment products and automated monthly generated income rather than owning a fixed asset requiring manual management.
Jobless can get back their job, having more work, more people are being employed. Those who suffer from pay cut reduction will be restored, and many people will start earning more. In addition, luxury products and renovations will have happened, affecting many sectors such as electrical appliances, furniture, kitchen appliances, and jewellery. Infrastructure project may also benefit from the good sign. Constructions related counter are famous with their high debts, late repayment. However, if company are getting big projects which can sustain for next 3-5 years, it should be a good investment.
To pick the good stock for recovery, make sure it had to be this set of criteria:
recovery trend = true;
undervalued = true;
high dividend = true;
This will be a perfect combination of stocks to invest in. However, after a basic FA check, you may need to focus in Intermediate - Advance FA where some companies are laggards in the industry or have small market share where less volume flows into the counter. Understand that, The Day You Plant The Seeds Is Not The Day You Get The Fruits. Always Take Care of Money Management. Knowing when to buy is NEWBIE and Knowing when to sell is MASTER, ALL IN and ALLIN just a different of a space. Something, things may not works as expected.
You can always to decide Short Term Pain (STP) or Long Term Pain (LTP).
STP = Cut + Move On = Lesson Learnt
LTP = Continue Hold (Average Down + Buy Red) = Insist Opinion or Self Familiar Sector
We provide list of sectors that had not been analysed, you can put this on your screener/watchlist for more details private analysis.
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