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Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Sunday, 11 October 2009

Oil & gas sector ripe for upward re-rating

Oil & gas sector ripe for upward re-rating

Tags: Alam Maritim Resources Bhd | Barrow Island | Chevron Corp | enhanced oil recovery | EOR | Exxon Mobil Corp | Gorgon project | Handal Resources Bhd | Jason Yap | Kencana Petroleum Bhd | liquefied natural gas | LNG | O&G | oil and gas sector | OSK Research Sdn Bhd | Petra Group | Petroliam Nasional Bhd | Petronas | Royal Dutch Shell plc | Tanjung Offshore Bhd | Wah Seong Corp Bhd

Written by Chong Jin Hun
Tuesday, 06 October 2009 22:46

KUALA LUMPUR: The Malaysian oil and gas (O&G) sector could be ripe for an upward re-rating in anticipation of support services firms being awarded new contracts by oil majors as demand for crude oil recovers amid an improving global economic landscape.

Valuations for O&G support services firms are deemed attractive at current prices, according to OSK Research Sdn Bhd analyst Jason Yap. He noted that average sector valuations are trading below a price-to-earnings ratio (PER) of 10 times financial year 2010 earnings, compared with a historical PER of between 18 and 20 times.

"Once the tap is turned on and contracts start to flow, the future earnings of local supporting O&G companies would be upgraded and a fundamental upward re-rating on the sector would follow.

"There has been no major O&G contract award in the past one year and we believe these are due anytime now," Yap wrote in a note to clients yesterday.

Yap, who likes O&G firms like ALAM MARITIM RESOURCES BHD [], KENCANA PETROLEUM BHD [] and Wah Seong Corp Bhd, is retaining his outperform call on the sector.

The industry is deemed fairly valued at a higher PER of 11 times, an upgrade from the nine times estimated earlier. The upward revision is in anticipation of new jobs in the pipeline.

O&G support services include fabrication of O&G facilities, pipe coating, installation of pipeline and facilities, engineering, procurement and CONSTRUCTION [] and provision of offshore supply vessels (OSV).

Several global large-scale projects involving local companies are worth noting. These include Australia's Gorgon liquefied natural gas (LNG) project, which includes the construction of an LNG facility with an annual capacity of some 15 million tonnes on Barrow Island, off Western Australia.

The Gorgon LNG initiative, one of the world's largest, is a collaboration among three oil majors — Chevron Corp, Exxon Mobil Corp and Royal Dutch Shell plc. Based on news reports, the initial phase of the project is valued at some A$43 billion (RM132.69 billion).

Malaysian entities including process equipment maker KNM GROUP BHD [] and pipe-coating specialist Wah Seong are among bidders for the job, Yap said, quoting sources.

In Malaysia, Exxon Mobil and Petroliam Nasional Bhd (Petronas) had signed a production-sharing contract to develop seven existing oil fields off the peninsula. These include the Seligi, Guntong, Tapis, Semangkok, Irong Barat, Tabu and Palas fields, which are mostly off the coast of Terengganu.

Both parties had agreed to spend at least US$2.1 billion (RM7.22 billion) on major enhanced oil recovery (EOR) operations, rejuvenation of facilities and further development and drilling activities in the fields.

OSK said potential beneficiaries of the project included OSV players like Alam Maritim, Petra Group and TANJUNG OFFSHORE BHD [], besides crane manufacturer Handal Resources Bhd.

Oil sands projects, which involve companies like KNM, are an area to watch as oil prices gained momentum.

"With oil prices building a new base at US$70 a barrel, we believe it would be a matter of time before oil sands projects, which were previously abandoned owing to unfavourable oil price, are revived," said Yap.

Crude oil prices have more than doubled to US$70 a barrel from about US$30 a barrel early this year. The commodity almost touched US$150 a barrel in the middle of last year. OSK estimated that the commodity would be transacted at between US$70 and US$80 a barrel next year.

"We believe crude oil prices should go up in 2010 in line with a better global economic outlook and spur the award of new O&G projects," Yap said.

While a rise in crude oil prices was often associated with the weakness of the US dollar, Yap said the major driver of crude prices was an anticipation of a recovery in the global economy and higher demand for the hydrocarbon resource.

"Also, there is a very real possibility of a scarcity of oil supply starting from the next few years since most of the oil majors have been holding back the bulk of their capex on new O&G projects in the past one year," Yap said.

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My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Sunday, 11 October 2009

Oil & gas sector ripe for upward re-rating

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All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

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