|DO YOU LIKE PENNY STOCKS?|
Money Talk Penny picks or gambles?
|Business & Markets 2014|
|Written by Cindy Yeap of theedgemalaysia.com|
|Thursday, 16 January 2014 16:00|
And “bets” would be how conservative investors looking for fundamental value would view most of the 18 stocks that drew UMA queries over the past six months. Two-thirds or 12 of these counters queried since July 2013 are currently loss-making, with 10 of the latter having a market capitalisation of under RM100 million (see table).
Sersol Bhd, for instance, was queried twice during the period in review. Five others — DSC Solutions Bhd, Ingenuity Consolidated Bhd (formerly Ingenuity Solutions Bhd), Sumatec Resources Bhd, Flonic Hi-Tec Bhd and DVM Technology Bhd — have received at least one other UMA query over the past three years.
Including the recent UMA, Ingenuity has been queried as many as six times in the past three years — twice in August 2012, once in March 2012 and twice in May 2011. Ingenuity’s stock price saw a visible spike and subsequent sharp fall around the time the UMA queries happened (see price chart).
A similar trend is seen at some of the other UMA-queried stocks, including Sersol, that went from as little as 12.5 sen early May 2013 to RM1.07 on Sept 25, 2013 — a 756% gain in less than five months on news of the entry of Mohd Nazifuddin Mohd Najib, son of Prime Minister Datuk Seri Najib Razak, as a substantial shareholder. Most of the gains were lost by mid-October as the stock fell to the 40 sen mark, a level it is still hovering at today.
In fact, seasoned traders say some companies might have to change their names to throw off unwanted speculative interest or rebuild their track record to attract the more serious investors.
“Some names you hear and immediately, syndicates come to mind… It’s very hard to get serious investors, people who want to look at PER and multiples and so on. Traders look at momentum and newsflow. People who are close to the market, they know which stocks are going to see a lot of action, which are the current flavour,” says one retired remisier who still actively monitors the market.
Indeed, buyer beware is true in many cases, going by the wide swings in prices some of the actively traded stocks have seen over relatively short periods.
Even Eco World Development Group Bhd — whose RM1.14 billion market cap is currently the biggest of the 18 so-called “UMA queried” stocks — had a market cap of only RM77.3 million a year ago when its shares were going for 30.5 sen apiece. The company, formerly known as Focal Aims Holdings Bhd, received a buyout offer at RM1.40 per share in September 2013 from outgoing S P Setia Bhd chairman Tan Sri Liew Kee Sin and his son, Tian Xiong. Eco World closed at RM4.50 on Jan 8. Other than Liew’s reputation as a property man, Eco World made its presence known to the investing fraternity with its RM600 million purchase of some 3,000 acres of land in Johor and Kuala Lumpur.
Only time will tell how much of the gains in Eco World’s share price are backed by fundamentals and if there is further upside. But in Eco World’s case, even punters looking for the next good bet point out that Focal Aims had three straight years of losses before returning to the black in September 2012.
Market watchers, meanwhile, point out that newsflow and personalities are among the key factors to look for in seeking out momentum plays.
In the case of Sumatec Resources Bhd, it was the name Tan Sri Halim Saad. For Sersol, traders were won over by Nazifuddin’s name.
Filings show Nazifuddin, 30, emerged as a substantial shareholder of Sersol on Sept 25, 2013, after SerSol Holdings Sdn Bhd bought 40 million shares or a 20.76% stake. Sersol’s trading volume spiked to 46.74 million shares on Sept 25 and 38.18 million shares on Sept 26 last year, with trading volumes over two days making up 44% of the company’s share base.
In an announcement on Sept 26 to clarify the RM100 million revenue reported in a news report, Sersol said the figure was not its official projection, estimate or forecast but merely “an expression of the major shareholder’s target and aspirations”. The article was headlined “PM’s son Nazifuddin takes control of Sersol”.
Bursa served its UMA query on Sersol several days later on Oct 7. For the nine months ended Sept 30, 2013, Sersol made a RM1.21 million net loss, down from RM1.58 million in the previous corresponding period.
While company announcements are an avenue where material information about the company is made known on a timely basis, it would seem that not much stock is given to the standard replies to UMA queries.
Of the 18 companies that received UMA queries over the past six months, a handful offered their two cents on what could have spurred the sudden interest in their stock, but most merely said they were “unaware”. Flonic Hi-Tec and Hytex Integrated Bhd, for instance, said trading by some of their major shareholders may have encouraged trading in the market. Others like Wong Engineering Bhd and Eastland Equity Bhd, meanwhile, mentioned ongoing expansion discussions that were part of the normal course of business.
However, not all companies see a fall in their share price after a UMA query.
The stock price of Malaysian Bulk Carriers Bhd, which received an UMA query in January 2012, for example, has stayed fairly stable in recent months. Interest in the company was spurred by market talk of the possible listing of its 21%-owned associate company, PACC Offshore Services Holdings Pte Ltd (POSH), this year.
In the case of Brem Holdings Bhd, the company’s reply to the UMA query caused analysts and journalists to look deeper into its books and see whether there is a possibility that there are undervalued assets.
As for the aspiring traders and trader wannabes, the retired remisier has one word of advice: “Just be very sure you can afford to lose the money you put into penny stocks. It is like buying lottery or 4D jackpot, just loose change… don’t go hardcore margins and you will not risk ending up penniless in your old age.“
Meanwhile, for those who may be looking for the next potential momentum play, here’s a list of 20 stocks whose average volume in the past 30 days has gained the most in percentage terms versus their one-year average volume and whose prices have moved higher versus their 30-day and 200-day average, based on Bloomberg data.
This article first appeared in The Edge Malaysia Weekly, on January 13, 2014