Why is Noble a bad buy even at $0.47

I know there are many Noble fans in Singapore. Sorry, but I really cannot super cannot understand why are people still buying Noble in this market?

Before I study its financial statements released yesterday, let's look at how Iron ore prices importing from China have dropped since last year. I relate to Iron ore since Noble group has a major business unit in metals and mining.

From a high of US$160+ in 2013 to the current $40+ now, the Iron ore prices have dropped so much. When iron ore drops, metals/mining/scrap all others drop too.

In fact, the commodities market has sucked so badly this year and it is of no surprise that companies dealing in this sector will face a drop in profits. When your revenue drops but your fixed costs remain, it just means that the profit will drop a lot more.

But here's the thing:

Sorry to say, metal prices show NO signs of recovering as of now.

This is because I work in the frontline of metal commodity prices so I do have some knowledge on the prices.

So if it's still not recovering, can I safely say that next quarter's financial results will still be as disappointing? Which means stock price may drop even more?

Now, let's go on to Noble's financial results:

1. ROE (Return on Equity) Based on info provided by Noble: 5%+
A healthy, growing company should have an ROE of  >15%. 5% is not even 1/3 of that omg..

2. D/E ratio is 2.80+ approx.
This is like super high. A healthy company should be looking at <1

3.When ROE sucks and D/E also sucks, the company show signs that it is heading for Disaster.
If you have a high ROE and a good D/E, it is a very good growing company. If your ROE is low but D/E is also low , it implies that the company is surviving but nothing fantastic.
But if your ROE sucks and your D/E also sucks, then likely it is heading for a disaster.

4. Profits dropped 83%,
Not a surprise when commodity prices drop so much. However, cash flow is now positive and it seems that Noble has done a good job in cutting costs.

I can't determine what is a good price to buy given that the earnings are really volatile in this terrible market.

Conclusion:
Will only consider to buy when the commodity market in general show signs of picking up.

Will I buy stocks now?

Just a very quick Q&A..

1. Why did the STI drop so much this week?

The main reason was due to China' slowdown in economy with China's manufacturing activity falling to the lowest level in 6 years.

2. Are there any signs that China's economy is improving?

No.  As someone working in the Metal commodity industry, I have first hand knowledge of China's metal prices such as in Iron Ore, finished products and scraps. The prices are dropping so much that it is really rather depressing. It is still dropping now and then.. I am afraid that this quarter's performance may even be more dismal.

Chinese construction market is slowing and it has an obvious effect on its metal prices. Working backwards, I can only believe that China is facing a negative demand brought about by a slowing economy. I can see the correlation in China's metal prices and China's economy and China's stock prices and Singapore's economy and Singapore's stock prices..(You get it).

3. Will I buy stocks now?
The short answer is No. I believe that prices have yet to hit rock bottom and metal commodity prices are not showing any sign of improvement.

4. Will I sell my stocks now?
No. Warren Buffet says 'If you can't hold a stock for 10 years, then do not think of holding it for 10 minutes"

My stocks are for long term and I still firmly believe in the companies that I have chosen.

And really, there is no reason why I should be selling at a loss!!

These are really my humble thoughts. Feel free to leave a comment. Thank you!

My actions in this bear market

Here's what I have strategized during this horrible bear market.

1. Console myself that STI annual returns was about 8-9% throughout the past 28 years.

Here's the chart:

From year 1987 to Aug 2015 now, the returns was 265.62%, over 28 years annualize as 9.48%.

STI has fluctuated many many times but the general trend is upward. One should treat stock investments as a long term serious commitment, and have the patience to ride out the rocky waves from time to time. My investment horizon is 10 years at least, not 10 months or 10 days.

This brings out to my next point:

2. Be patient, hold my stocks.
I read somewhere about the psychology of most investors and why majority lose money in stocks. Credits to the rightful owner of this picture (which I do not have the source).

Are you selling your stocks now? are you selling it at a loss?
Why are you selling it at a loss when you should be selling it at a profit?
Is it because your stocks are junk? wait, if you stocks are junk, why have you bought them??

This brings about to the next point again.

3. Look at the fundamentals

Although one should treat investment as a long term horizon, it is also very important to look at the financial statements of the company periodically. I have great interest and excitement whenever I look at the company's financials!

Is the company doing reasonably well and having a decent growth rate? how is the industry doing? how is the management? what have they conveyed as their growth strategies?

If the company does not seem to be doing well either because the company is lacking in groove, lacking in management leadership or generally because the industry has slowed down and show no signs of improving, then yes, it is time to cut your losses.

Other than that, if the company has strong fundamentals, it is best to HOLD and not sell at FEAR. pls omg.

4. Dollar cost averaging
'Dollar cost averaging' is an investment term used to describe the purchase of unit trusts. However, the principle can be applied when buying stocks.

It generally means that one can buy stocks gradually, inching bit by bit when stock prices changes.
Meaning:
500 lots at STI ETF $3.02
500 lots at STI ETF $2.80 ( if it really goes this low)
and then buy again when it drops further till when it finally starts going up.

This will mitigate the loss as the stock price is averaged out. Eventually (perhaps years later) when the stocks go up again, that's where the profits can be seen.

That being said, I am going to buy STI. I do have other blue chip stocks in mind that I think are really undervalued but I will not be sharing it here.

Till then, I will also not be logging into POEMS to check my portfolio. x.x

My portfolio in this terrible market

Omg the stock market has fallen from a high of STI 3500 during its Peak to the current 3195 now.

No idea when is the bottom. However, my portfolio has remained relatively 'unscathed'.

To recap, this was how my portfolio looks like and I explained briefly here.

The majority of my stocks are Trust  & Reits and as they are more stable, they form a good backing for my overall portfolio. I am still gaining a net positive in these Reits and as a result, they mitigated the loss in my blue chip and growth stocks.

My reits stocks: AIMS AMP, Keppel DC
My trusts stocks: Capitamall (waiting for a better price to sell), FrasersCentre point trust
My blue chip stocks: Keppel, StarHub, Raffles Medical
My growth stocks: Q&M, Amtek Engineering, Hyflux, Alibaba

Sigh. If only entire portfolio is made up of Reits right? Yeah.. during a downturn, I think that way. But when it is bullish, things go the opposite way and I contemplate why I didn't buy more growth stocks. (lol)

Reits, bullish or bearish, they are relatively stable.