All steel stocks - Buy on weakness, hold or cut loss

Dear valued members,

 

Special note:

This is an educational program, stock selection criteria is based on TA and FA facts. 

This article is strictly for reference only. Never trust anyone as far as your investment is concerned. Please do your homework before you decide to invest. It is your money, you make your own decision and you are responsible for the final outcome.

I have a certain code of ethic when I write my article in I3.
If the article is beneficial to all the readers here, I will write and post it.
If it is harmful to majority, I will avoid it at all times.
I have followed this code of ethic since day one I posted my article in I3.

 

Many of the readers in I3 are asking me this question, "should we cut loss on all steel stocks and get out of KLSE ?".

I decided to answer this question as follows.

 

FBMKLCI is bearish only but not Ind/prod index

Reasons

1. Investors are fearful about Covid-19 pandemic.
2. Investors are fearful about the unstable and fragile Malaysian government.

Two articles written by "Super investor" in I3

https://klse.i3investor.com/blogs/koonyewyinblog/2021-07-11-story-h1567924222-

Why_should_investors_get_out_of_the_stock_market_Koon_Yew_Yin.jsp

 

https://klse.i3investor.com/blogs/koonyewyinblog/2021-07-10-story-h1567920382-A_safe_strategy_during_pandemic_Koon_Yew_Yin.jsp

 

One article written by KC Chong

https://www.facebook.com/1238461152861295/posts/6052893511418011/

 

Investors are fearful about Covid-19 pandemic

1. Looking at the USA as a good example, we need to have lockdowns and vaccinations to stop the spread of this disease.
2. Lockdowns can improve to a certain extent only because long lockdowns will affect the economy of our country.
3. I believe we have a very long lockdown, I hope this lockdown will stop after 16/7/2021.
4. Malaysia administered 421,479 doses of Covid-19 vaccines yesterday (July 12) — the eighth day in a row that over 300,000 jabs were given. This is also the highest number of shots recorded per day. 
5. At least 22.07% of the population had gotten their first dose, while 9.75% of the population were fully inoculated as of yesterday.
6. In my view, with the current speed and arrival of 12 million vaccines in July, we can expect 60-80 per cent of the population completing their doses by the end of September 2021.
7. NBA basketball stadiums in USA are full of spectators once the US government vaccinated > 60% of her people.
8. Britain will lift MCO lockdown on 19/7/2021 and Singapore will lift MCO lockdown in August 2021. They will lift MCO lockdown once more than 60% of the population is vaccinated.
9. I believe Malaysian government will lift MCO lockdown once more than 60% of the population is vaccinated.
10. Based on high administered of more than 300,000 jabs per day, I believe more than 60% of the population will be vaccinated by September 2021.
11. I am very confident this Covid-19 pandemic fear will be over by September 2021.

Malaysian economy

1. Malaysian exports and trade numbers are still strong.
2. Malaysia’s total trade in May 2021 expanded by 48.7 per cent year-on-year to RM170.9 billion as the country’s exports and imports maintained strong double-digit growth, according to the Department of Statistics Malaysia.
3. Exports, imports and total trade posted a growth of 47.3 per cent, 50.3 per cent, and 48.7 percent respectively.
4. The country’s 2021 gross domestic product growth at between three and four per cent, budget deficit at six to seven per cent, while the ringgit is expected to hover at between 3.67 and 4.10 per US dollar.
5. I am cautiously optimistic about the economic growth and outlook for Malaysia.
6. The Malaysian economy has that resilience to bounce back due to its productive labour force, modern technological infrastructure, and consistent economic policies for global and local investors.
7. However, as long as there is continuing focus by the administration, especially the civil service on containing the pandemic, reopening businesses and factories, and maintaining social order and stability, the negative consequences on markets and the economy will be limited.
8. Brent crude oil is at USD 76, palm oil is selling at 3,795 per/MT. Malaysia is the world biggest exporter of rubber gloves. I believe Malaysian economy is very strong.
9. As long as the economy is performing well, the stock market (KLSE) will perform well too. The current setback is temporary and it can be resolved after Covid-19 pandemic is under control. I believe we will see a better KLSE in September 2021.

All steel stocks belong to Ind/Prod index

Ind/Prod index is still bullish, the index is still above 200-day SMA.

Enclosed is Ind/Prod index for your perusal.

 

TA reading

1. The index is inside a horizontal channel, the trend is sideways.
2. According to the TA definition of an up trending, the index must stay above the 200-day SMA. Hence the index is still in up trending mode.
3. The index is below the "Golden Cross Sell" signal which is bearish.
4. Force index is bearish.
5. MACD and Parabolic SAR are bullish.

Good steel stocks listed in KLSE

I will use the following rules to project PAT and EPS.

1. I will assume the next half year, the projected PAT is only 1 quarter earning.
2. 3 months PAT is wasted due to MCO lockdown. I believe the impact is less than 3 months because many of steel industries were operating full force in May 2021 and some production in the following 2 months.
3. This quarter's earnings are equal to the average of last 2 quarter PAT.

		Price				Q Before	Latest Q	Next half	Projected	Forward	PER=10
Stock	31/12/20	13/7/21	% Up	Highest	% drop	EPS	EPS	EPS	EPS	PER	Target	Gain %
Choobee	1.65	1.75	6.06	2.54	31.10	8.81	20.93	14.87	44.61	3.92	4.46	155
Hiaptek	0.46	0.49	6.52	0.705	30.50	2.21	4.79	3.50	10.50	4.67	1.05	114
LeonFB	0.595	0.865	45.38	1.22	29.10	5.84	11.65	8.75	26.24	3.30	2.62	203
Melewar	0.52	0.475	-8.65	0.715	33.57	3.21	3.87	3.54	10.62	4.47	1.06	124
Prestar	0.875	1.01	15.43	1.53	33.99	8.12	9.45	8.79	26.36	3.83	2.64	161

My comments :

1. I purposely make the EPS to be low to reflect the effect of current EMCO imposed by Malaysian government.
2. Based on international news, steel stocks will perform very well in the next 2 years. We need to buy and hold them for a bit longer period.
3. The prices of steel and iron ore dropped from the peaks is about 4.26% and 5.93% respectively, but the share prices of steel stocks dropped ranging from 29% to 34% which is not reasonable.
4. I believe the share prices of steel stocks are very undervalued. The share prices dropped very badly are due to MCO and bad market sentiment in KLSE.
5. I believe the share prices of steel stocks will come back after this MCO is over, just invest them on a bit longer term.
6. I like Hiaptek because there is a 100% expansion in capacity in 2022. The ESOS for directors and exercise price for warrant is 0.50 respectively, the present price is also 0.49, the downside risk is very small now. 

Is steel price still good in June 2021 ?

Please read the below link.

https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=142&bul_id=eUtKN0FFNFZSV2JiZHF1TWFLTU1nUT09&menu_id=bThzTHQxN1ZqMVF6a2I4RkZoNDFkQT09

Based on the readings, I still think that the steel price is still good in June 2021 despite MCO imposed by Malaysian government.

 

Steel price will increase in the next 12 months

1. Please read the link below. https://tradingeconomics.com/commodity/steel
2. The steel price closed at 5,005 Yuan/MT today, a very good sign.
3. According to an analyst, he forecasts the steel price to trade at 5,167.25 Yuan/MT by the end of this quarter (Q3 2021). He believes that the steel price will trade at 5,772.32 Yuan/MT in the next 12 month.
4. I had a long discussion with a friend who is involved in the steel industry in Malaysia, we feel that the steel price will go up about 15% in the next 12 months. We forecast the steel price to be around 5,750 Yuan/MT in the next 12 months.

International events to confirm a high steel price
The biggest producer of crude steel is China, followed by European unions, Japan, USA, India, Russia and South Korea.

1. China is facing a shortage of coal, steel production is affected.
2. China is cutting production of steel products by 30% from 1/7/2021 till 31/12/2021.
3. China was dumping steel products below cost previously, it is the main reason to cause the steel price to drop. China has stopped exporting steel products to the world now. This bad news will disappear permanently by now.
4. Steel production in European Unions and India are reduced drastically due to Covid-19 pandemic.
5. Japan is booking all steel products for her ship building sector until May 2022. demand is greater than supply.
6. The US President is starting to spend USD1.2 trillion on top of USD579 billion on infrastructure projects over 8 years. When the US President announced this news, all steel stocks involved in Construction and Electric Vehicle (EV) in the US hit new highs.
7. The Properties Index in the US is already up 28% since 2021.
8. Electric Vehicle (EV car) production in the US is already up 98% since 2021.
9. In the US, most of the steel industries are in shutdown to install new machines for expansion. There is a big reduction of steel production in the US now.
10. Russia imposed 15% export tax effective 1/8/2021. 26 steel stocks listed in Russia stock exchange hit limit up after this announcement.
11. South Korea is focusing on exporting steel products to the US market only and stopping selling to other parts of the world.
12. There is more demand than supply of steel products in the current world market, hence the steel price will go up in price. No way China is able to control it.
13. Previously, Malaysia bought steel from China. Presently, China buys steel from Malaysia. The economy of China is still very strong, infrastructure projects are many, the demand from steel products from China is very high. Malaysia should export more steel to China after this MCO lockdown is over.
14. All steel stocks listed in KLSE should perform very well after this MCO lockdown is over.

My comments

1. When a stock is trading at a PER of less than 5, the chance for the share price to drop a lot is not possible. To me it is a buying opportunity rather than cut loss.
2. All the aforesaid stocks are trading at a PER of less than 5.
3. I still believe the current drop in the share prices of steel stocks is temporary due to sluggish market sentiment in KLSE.
4. I feel that the share prices of the steel stocks are cheap enough after a steep correction, I think it is time to bargain hunt rather than to cut loss.
5. Since China is no longer dumping steel products below cost in Malaysia, the share price of steel stock will rise up surely and slowly. I will select those stocks which showed good latest quarter results. I want to see a strong growth in the latest quarter result compared against the earlier quarter result. All 5 stocks are very good steel stocks to invest. It is my selection criteria for steel stocks.
6. You must also need to note the trading volume of the stock, the share price will not go up fast if the trading volume is very low.
7. The share price of steel stock began to run up in December 2020, it is still in the infant stage. I strongly believe this run up will last at least 1 to 2 years down the road. 

Should we cut loss and get out of KLSE totally ?

1. Malaysia administered 421,479 doses of Covid-19 vaccines yesterday (July 12) — the eighth day in a row that over 300,000 jabs were given. This is also the highest number of shots recorded per day. 
2. I believe Malaysian government will lift MCO lockdown the latest by September 2021 or earlier.
3. I have 2 sleepless nights to think about this question. One minute I want to cut loss and get out. The other minute I want hold on to these stocks and fight it out. After reading items 1 and 2 carefully, I had made the below final decision.
4. FA of all steel stocks are very good, they are trading at a PER less than 5. We cut loss means I did not follow FA rule to invest.
5. Based on TA, we must get out once the share price drops below 200-day SMA. It is the rigid TA rule to follow. 
6. I think I will stick to this TA rule since my strategy is TA comes first and FA comes second.
7. Please cut loss and get out if the share price of the steel stock is below 200-day SMA. 

The cut loss level - Price below 200-day SMA

 

		Below
Stock		200 Day
Choobee		1.45
Hiaptek		0.39
LeonFB		0.63
Melewar		0.41
Prestar		0.87

The final decision is always yours, please decide yourself.

Thank you.  

Ooi

寧可天下人負我, 休教我負天下人

 

Disclaimer :

This is an educational program, stock selection criteria is based on TA and FA facts.   

Please be informed that the aforesaid stocks are solely for the purpose of education only ; it is neither a trading advice nor an invitation to trade. For trading advice, please speak to your remisier or dealer representative.

The final decision to buy is always yours.

 

 

 

https://klse.i3investor.com/blogs/OoiTeikBee/2021-07-13-story-h1567977878-All_steel_stocks_Buy_on_weakness_hold_or_cut_loss.jsp