Industry: Tobacco

BATS



ADR BTI





IMT



ADR ITYBY





JTINTER







BAATABAK



PM

Investor's Checklist: Consumer Services

Most consumer services concepts fail in the long run, so any investment in a company in the speculative or aggressive growth stage of the business life cycle needs to be monitored more closely than the average stock investment.

Beware of stocks that have already priced in lofty growth expectations.  You can make money if you get in early enough, but you can also lose your shirt on the stock's rapid downslide.

The sector is rife with low switching costs.  Companies that establish store loyalty or store dependence are very attractive.  Tiffany's is a good example; it faces limited competition in the retail jewelery market.

Make sure to compare inventory and payables turns to determine which retailers are superior operators.  Companies that know what their customers want and how to exploit their negotiating power are more likely to make solid bets in the sector.

Keep an eye on those off-balance sheet obligations.   Many retailers have little or no debt on the books, but their overall financial health might not be that good.

Look for a buying opportunity when a solid company releases poor monthly or quarterly sales numbers.  Many investors overreact to one month's worth of bad same-store sales results, and the reason might just be bad weather or an overly difficult comparison to the prior-year period.  Focus on the fundamentals of the business and not the emotion of the stock.

Companies also tend to move in tandem when news comes out about the economy.  Look for a chance to pick up shares of a great retailer when the entire sector falls - keep that watch list handy.  


Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey


Read also:
Investor's Checklist: A Guided Tour of the Market...

A quick look at JTI (13.5.2010)

A quick look at JTI (13.5.2010)
http://spreadsheets.google.com/pub?key=tOLRl0VcERSZUqz0FX99q3g&output=html

Prospects for This Financial Year
JT International Berhad expects the challenging operating environment to continue for the remainder of the year. The key challenge that will have a significant impact on its business will be the impending prohibition on the sales of cigarette packs containing less than 20 sticks that will be fully effective on June 1, 2010.

Illicit cigarettes, which now account for one out of three cigarette packs in the market, continue to present a major challenge to the legal tobacco industry. As the growth of the illicit cigarette trade is fuelled by significant excise tax increases implemented over the years, JT International Berhad is appreciative of the Government’s cognisance of this issue, which culminated in a more moderate excise tax increase in 2009. Moving forward, JT International Berhad hopes that moderate tax increases will continue to be implemented to curb the growth of the illicit cigarettes trade. JT International Berhad is also encouraged by the increased and integrated activities of the various Government enforcement agencies to combat this alarming issue. In addition to broadening their enforcement scope to the retail level, the Government agencies are now detaining and charging illicit cigarette traders in court as an effective deterrent measure. JT International Berhad will continue to cooperate fully with the authorities in the ongoing fight against the illicit cigarette trade and is hopeful that moderate increases in excise taxes, together with the current enforcement efforts by the Government agencies will curb the growth of the illicit cigarette trade.

Amidst these challenges, JT International Berhad is committed to maintain its competitiveness and aims to deliver a satisfactory overall performance for the current financial year through continued effective investment behind its global flagship brands - Winston, Mild Seven and Camel.

JTI

FY 09 EPS (Sen) 38.0 PER 12.1(x) Div Yield 4.8(%) ROE 21.2 (%)

EPS GR: last 5 years 7%, last 10 years -0.6%
Historical PE range: last 5 years 11.0 to 13.1, last 10 years 13.1 to 17.0
Historical DY range: last 5 years 8.2% to 6.8%, last 10 years 7.6% to 5.9%


JTI is in a defensive industry. Come rain or shine, its earnings will not be much affected. However, it is in an industry that is regulated negatively by the government. The government is curbing this industry, through various measures. It is anticipated that the growth of this industry will be challenging in the future years. Every year, one will have to worry each time the budget is announced. An unknown is the degree of confidence you have in your personal assessment of how fast JTI can grow its earningsg in this tightly regulated industry.


At the present price, based on historical comparative valuation, it is not exactly a bargain. Therefore, I would probably give this a miss and look elsewhere for undervalued stocks.

(I am only offering my personal view. You should make your own decision always.)