SMRT up 23% in 3 days: Now Hold? Buy?

SMRT up 23% in 3 days: Now Hold? Buy?:

Analyst: Andrew Chow, CFA (left)

Our take. At this stage, there has been no announcement from SMRT on any potential fundamental change other than the usual reply to SGX that the group is not aware of any possible changes to warrant the rise in share price. We think the market could be speculating on several potential scenarios including: 

1) privatisation - which we think is unlikely 2 ) restructuring with comfortdelgro to form an alliance - unlikely in our view as government not likely to favour a monopoly

3) cost plus model (or a new fare review formula for bus) - possible as this is adopted in certain countries and could help stem losses on bus.  

4) asset light financing model - possible as we understand the government is considering this option to help operators stem losses from asset ownership and instead, focus on operating and maintaining the assets.

Out of these 4 scenarios, we think the most probable would be (4). The asset light framework proposal (4) is not entirely new as it was initially introduced in 2010 for Comfort's Downtown Line. 

According to Straits Times, SMRT submitted a detailed proposal to the government on Wednesday to move its rail business to the new framework. We believe that a potential stumbling block is the valuation of the assets that are to be transferred to the government. 

Although the proposed transfer of ownership of rail assets back to the government would save SMRT S$100m-200m in capex and depreciation costs, SMRT will have to pay leasing charges, which could partially mitigate depreciation expenses. In addition, we think the government is likely to impose higher service standards, which could translate to high maintenance and operating costs.

Given these uncertainties, we maintain our forecasts and HOLD rating pending further announcements. We have a DCF-based target price of S$1.10/share.  Our latest report on SMRT and the sector, where we highlighted a potential catalyst to be a change in the asset light financing model is attached.

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How to buy your first grown-up watch - CNN.com

How to buy your first grown-up watch - CNN.com:



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Aston Martin signed by Michael Jordan, others up for auction

My Investing "Aha Moment" - yong888@gmail.com - Gmail

My Investing "Aha Moment" - yong888@gmail.com - Gmail:

Probably the most frequent question I am asked about buying shares is where do I find my investing ideas.
 
Do I, for instance, use some fancy filter to screen the vast array of available shares on the market for prospective purchases? Or do I furtively steal a glance at charts when I think that no one is looking over my shoulders?

Then again, do I spend hours on end scouring the many financial news channels on TV for ideas about what is currently hot?

It is none of the above. In fact, I have never really given the matter that much thought. That is, until fairly recently.

Two wooden trunk boxes
 
My "Aha Moment" came when I was fortunate enough to attend a reading of "Two Wooden Trunk Boxes" at The Arts House by renowned author Zhou Can.

The prolific Chinese writer together with academic Dr Tan Chee Lay, were discussing the inspiration behind his seminal work about two very old wooden cases.

What I found interesting was that different people will take away something quite different after reading the same piece of prose.

For me, it seemed fairly straightforward. It was about owning something that was considered by many to be old and ugly that has over time become something beautiful and valuable.

Investing for me is a bit like Zhou Can's "wooden trunk boxes".

When ugly is beautiful

When I invest, I specifically look for ugly and unwanted shares. Some people might call that value investing. But for me it is simply about looking for quality shares that are unloved and, consequently, likely to be undervalued by the market.

Investing, in my book, should never be about buying into the latest fad. Warren Buffet once said: "Most people get interested in stocks when everyone else is".

But he went on to say: "The time to get interested is when no one else is. You can't buy what is popular and do well."

Buffett is essentially warning people to steer clear of popular stocks and the latest investment craze. His advice applies not only to specific shares but also for sectors and geographic regions too.

The secret to successful investing is about buying undervalued shares in businesses that you understand. Your understanding should ideally go beyond a superficial knowledge of the business too. It is vital that you delve deeper into the ways that the business makes money.

Let me explain.
 
Back in 2009, banks were massively unloved. That applies to not only banks here in Singapore but also elsewhere in the world. But it is precisely because they were unloved that investors should have looked more closely at the sector for their investing opportunities.

Look forward, not back
For instance, in 2009 DBS Group was valued at around 40% below its book value. At the time, the shares were trading at around S$4 a pop because not many people wanted to own them. 

Today, those same shares would set you back around S$9.50, which values the bank at a 30% premium above its book value.

You might, of course, point out that hindsight is a wonderful thing. But investors with foresight in 2009 would have realised that Singapore's biggest bank, which was trading at a significant discount to its book value, was a steal.

Peter Lynch once said that you can't see the future through a rear-view mirror. He is right.

Investing is about looking forward, not back. And currently I can see at least half a dozen sectors that are unloved. Can you?

Foolish best

David Kuo
Director, Motley Fool Singapore

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Warren Buffett: Didn't like Coke equity plan but abstained in shareholder vote

5 dividend stocks with yields of up to 10% - MarketWatch

5 dividend stocks with yields of up to 10% - MarketWatch:



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Can ARA Asset Management Manage to Bump Up Its Dividends Soon? | The Motley Fool:



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BERNAMA - SMRT Corporation Selects Zycus' Spend Analysis

BERNAMA - SMRT Corporation Selects Zycus' Spend Analysis:



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Investor Central stockwatch — Perennial China Retail Trust (PCRT) replies to questions about St James Holdings’ takeover | Money | The Malay Mail Online

Investor Central stockwatch — Perennial China Retail Trust (PCRT) replies to questions about St James Holdings’ takeover | Money | The Malay Mail Online:



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CAPITAMALLS ASIA delisting: "Sucks, if you've been holding stock since IPO"

CAPITAMALLS ASIA delisting: "Sucks, if you've been holding stock since IPO":



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Banks lure savers with more interest

Banks lure savers with more interest:



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If this happens, the S&P is in real trouble: Yamada

Is Now The Time To Look At SMRT Corporation? | The Motley Fool

Is Now The Time To Look At SMRT Corporation? | The Motley Fool:



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Singapore government invests US$54mil in Intelligent Bus Management System | Articles | FutureGov - Transforming Government | Education | Healthcare

Singapore government invests US$54mil in Intelligent Bus Management System | Articles | FutureGov - Transforming Government | Education | Healthcare:



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This stock market needs a correction - MarketWatch First Take - MarketWatch:



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S&P 500 challenges major technical support - The Technical Indicator - MarketWatch

S&P 500 challenges major technical support - The Technical Indicator - MarketWatch:



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5 warning signs of a stock market bubble - Mark Hulbert - MarketWatch

5 warning signs of a stock market bubble - Mark Hulbert - MarketWatch:

1. Volume of IPOs. There were 123 new issues in the first three months of 2000, according to University of Florida finance professor Jay Ritter. There were 58 in the same period this year, according to Ritter.

2. IPO returns. In 2000’s first quarter, the first-day return of the average initial public offering was an incredible 96%. During the first three months of 2014, it was 22%.

3. Dividend premium. The professors, in a study, focused on the relative valuations of two groups of stocks: those of established, dividend-paying companies versus those of more speculative firms. They theorized that, as exuberance reaches extreme levels, investors become bored by established, dividend-paying companies. In March 2000, speculative companies on average had a 43% higher valuation than the dividend-paying stocks. The comparable premium today for stocks in the S&P 1500 index is 26%, according to data from FactSet.

4. Share turnover. Over the first three months of 2000, NYSE-listed stocks’ turnover rate was an annualized 89%. For the first quarter of this year, it was 58%.

5. Share of corporate cash derived from equity issuance. Corporations increasingly turn to the equity markets to raise money during periods of speculative excess. The equity share stood at 20% for the first three months of 2000. The most recent data from Wurgler, covering three months in late 2013, showed the equity share was 11%.

The bottom line? None of the five sentiment indicators shows the market today to be as overheated as it was in March 2000.'via Blog this'

Jim Cramer: 3 things that could send stocks lower

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10-year Treasury yield death cross could signal bond rally - The Tell - MarketWatch

10-year Treasury yield death cross could signal bond rally - The Tell - MarketWatch:



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“Should the 10-year yield put in an actual Death Cross as the 50 DMA drops below the 200 DMA, it would likely signal a rally for bonds and an accelerated slide down in yield with bonds trading inverse to yield. Put otherwise, a possible Death Cross in the 10-year yield would probably suggest that this year’s rally in bonds is likely to continue and perhaps gain significant momentum.”

“After the September 2007, September 2008 and June 2011 death crosses, the 10-year yield dropped by more than 100 bps while it dropped by about 80 bps after the June 2010 death cross. This sort of a potential decline in yield may or may not happen now, but recent history certainly does suggest that death crosses in the 10-year yield tend to precede decent declines in yield in relatively short periods of time.”

U.S. stocks sell off; Nasdaq drop worst in 2 months - Market Snapshot - MarketWatch

U.S. stocks sell off; Nasdaq drop worst in 2 months - Market Snapshot - MarketWatch:



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Stocks end near lows: Nasdaq wipes out 2.5%, Dow dives 150

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Stocks drop as momentum names bleed; Nasdaq skids 2%

Chart: What’s the real unemployment rate?

What markets are looking for in the jobs report - Market Extra - MarketWatch

What markets are looking for in the jobs report - Market Extra - MarketWatch:



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SMRT buys 573 buses, largest number to date - Channel NewsAsia

SMRT buys 573 buses, largest number to date - Channel NewsAsia: "SMRT says the fleet renewal will increase its bus capacity on longer routes and bring greater comfort to the commuter's bus journey experience.

In particular, the addition of double deckers will help ease crowding during peak hours, especially on longer routes with high passenger loads."



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Michael Lewis: Nobody Understands the Stock Market: Video - Bloomberg

A big short, part deux—market correction—Commentary

A big short, part deux—market correction—Commentary: "And, in the wake of Michael Lewis's "Flash Boys" hitting store shelves, moves by regulators to slow down high-frequency trading (HFT) could also affect the market at some juncture. Witness the current FBI investigation into the HFT arena. While I am not a fan of HFT, by any means, a regulatory action that reduces the volume of trading on the combined exchanges could stress the market in the short run."

Ron Insana is a CNBC and MSNBC contributor and the author of four books on Wall Street. He also delivers a daily podcast, "Insana Insights," and a long-form weekly version, both available on iTunes and atroninsana.com. Follow him on Twitter @rinsana.

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Google investors are about to get GOOG and GOOGL shares in stock split - The Tell - MarketWatch

Google investors are about to get GOOG and GOOGL shares in stock split - The Tell - MarketWatch:



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Invest like Icahn: The rise of the activist investor - Market Extra - MarketWatch

Invest like Icahn: The rise of the activist investor - Market Extra - MarketWatch: "“In an ideal world, activist investors take a big stake in a company and add value by fixing poor operating performance and improving the balance sheet and jettisoning inept managers and board members,” said Martin LeClerc, chief investment officer at investment advisory firm Barrack Yard Partners in Bryn Mawr, Pa.

Unfortunately, “many tend to be very short-term focused and the solutions they come up with are solutions to get the stock moving,” he said."



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Company earnings warnings near record levels as Q1 reports loom - The Tell - MarketWatch

Company earnings warnings near record levels as Q1 reports loom - The Tell - MarketWatch: "
"



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Is the S&P 500 setting up a trap door? - MarketWatch

Is the S&P 500 setting up a trap door? - MarketWatch:

By Avi Gilburt

The more we chop around in the region we have been within the last several months, the more I hear analysts claiming that we are "correcting in time," rather than in price. This pattern seems to be lulling many into believing that we are developing a high-level consolidation, which most know as a form of a triangle. But quite often, these triangles break down, and open a trap door which most will not be expecting. The question is if this is one of those times.

One of the problems that we have during such "chop-fests" is trying to identify the operative pattern which will set the market up for its next big move. Unfortunately, this "chop-fest" has left us with three main patterns we are following (two bearish, and one moderately bearish), and one with a much lower probability (bullish). But none of the truly bearish patterns will take hold until we see a breakdown below this past week’s low of 1834 on the E-mini S&P 500 futures ESM4 +0.26% . So, let me go through each pattern so that you will know how to identify it when the market triggers the operative wave count.

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