Hey Guys,
Quick update. I added 1 pop of Sembcorp Industries today at the price of $3.91. This brings my average cost of this counter down to $4.26 from $4.43. This position I'm fairly confident should pay off, especially when the following happens:
- Sembcorb's share price converges with the price of oil.
I did a simple comparison of the share price vs WTI oil and there is a obvious divergence seen. I expect some levels of convergence, something which when extrapolated over time has shown to recur consistently.
- Market realises that Sembcorp is good value currently
All ratios, be they P/B, P/E etc all point to good value for the company
- Sembcorp's businesses pick up
I know we have all recently read their declining margins, businesses not doing well, falling revenue and asset turnover etc. However i like their overall business and strongly feel that they will revert to mean in the long run. Most of their businesses, marine included are fairly important and I expect again mean reversion in the LT.
Shall monitor the market closely for other developments but feeling glad on the addition today. Again one must take a long term view for this view to true play itself out positively.
Signing off
Transitioning Stock Investor
Hi Paul
ReplyDeleteDo you believe that all stocks will revert back to the mean reversion to its LT performance?
Hi B
ReplyDeleteThanks very much for your question and it's indeed a very good one.
Firstly, I wouldn't claim that I know for sure or if I have a crystal ball. However, based on past price behaviour of many stocks that I have seen and having a close grasp of markets due to my current work experience what I can say is that most stocks would revert back to mean over the LT provided if the business is fundamentally sound, can within the test of time, and is something that you know is still important and required even after 10, 20 years down the road. Then decide if the current factors that have caused the price to fall are temporal in nature. If so, it is likely that the price would eventually revert to mean over a longer period of time. I'm pretty confident that the LT mean price for Sembcorp is def above $4.50 and probably $5 or above. Am i willing to hold unto the stock until this happens? Certainly! Am i sure it will happen? Im not 100% sure but sure enough to have bought another lot today :)
*typo above. It should be withstand instead of within
ReplyDeleteHi Paul
ReplyDeleteMany thanks for your reply.
I think you are right in looking at things from that angle, especially if the cyclical downturn is temporary and not permanent. So things such as oil price are probably temporary. The other thing that I may have concern is the nature of competition. It depends on whether are looking at it as static or permanent. If the nature is permanent in nature, then its earnings will be impacted permanently which will give a lower mean reversion as a result.
I think ultimately it's still up to an investor's perception and interpretation of the business that makes the call valid.
Well said. Yup you are absolitely right. End of the day there's no definite right or wrong but a judgement call based on the most efficient utilisation of information available.
ReplyDelete