Thursday, June 4, 2015

Lelong, Lelong! Come buy, Cheap Cheap! Noble Group

I was a shareholder of Noble Group from 26th Jan 2015 until 17 Feb 2015. This has been the shortest time that I have ever held onto a stock.

When I had first invested into Noble, it was under the thesis that Noble is a big, established well-known stock that has been suffering because of the weak commodity market. I must admit, I was a bit sloppy in my due diligence and glossed through their financials. What enticed me to eventually to invest is (1) the reduction of the SGX board lots and (2) I wanted exposure in commodities-related equities.

Not even a month went by before the report by Iceberg Research came out calling them out for shitty accounting regarding Yancoal. I looked at their report and I did the basic math to verify their claims myself. You don't need to be a math genius to know that they can't freaking count. Noble was trying to pull a fast one on me. I exited the stock.

Selling at 1.06 from a purchase price of 1.02, I netted a final gain of 3.43% including transaction fees. I pat myself on the back for saying that I managed to make money from such a cursed stock.

Iceberg released another report and surprisingly Muddy Waters also joined the bandwagon.

What has happened since then? It has steadily plunged through the $1 mark and is now swimming below the $0.70 mark.


The Asia Report wrote a really good piece about Noble and I really liked the interview video with Carson Block from Muddy Waters.

As many might know, I'm a really sucker for buying ugly looking things. I like to look at what are the worst performers of the day and red stocks really just turn me on. When stocks go down, I get really excited. Why? Some brain damage perhaps.

However, usually when I do take the plunge and buy ugly looking shit, I have some sort of methods to my madness.

When Civmec got smashed in March, I entered based on the thesis that their EV/EBITDA ratio was ridiculously cheap at 4.5 and their balance sheet looked very decent to me.

I bought into Valuetronics last October when I calculated that I'm basically getting a healthy company paying high dividends for free.

I added to my massively losing China Fishery position in February and also participated in the rights issue because I think that a company trying to pay down expensive debt is doing the right thing.

What later happened and how and why I exited each of those positions are slightly less important than why I entered them in the first place. In all of these 3 instances, I had some sort of rational (debatable) reason why I think that their price weakness was not warranted. That also meant that I thought that prices would recover in the future, hence my purchases. Fortunately, I was right those 3 times. I don't like being right so often because it pumps up my ego and I feel like the next thing I do will definitely be wrong. I hate you, probability.

However, for Noble, what can I see? Honestly? Nothing really.

Their fantastic margins and earnings? (wafer thin net profit margins, mmm)
Their strong balance sheet? (fudged up valuation of Yancoal, mmm)

All I see is a bad company becoming even cheaper and cheaper. I don't see anything currently that can give it's share price support and form a price floor. What's stopping it from going to zero? Maybe it can turnaround in the future, but buying things that aren't obvious is gambling in my view, which is why I cannot wrap my brain around growth investing.

I'm going to stick my neck out here and call Noble a value trap. Maybe it is, maybe it isn't. I don't have to be invested in it to have front row seats to watch how this show ends.

If you're invested in Noble, please share your thoughts about what is keeping you in. If you're not invested, what would entice you to enter this stock? A lower price?

4 comments:

  1. why invest in tough and tricky stocks, when many blue chips and mid caps are selling for 2 year lows... example ST engineering and M1?

    ReplyDelete
    Replies
    1. Hey Felix,

      Agreed! I just took a nibble into Super Group and SembCorp Ind! Both ST Eng and M1 are starting to look really enticing I must admit!

      Delete
  2. Hi GMGH, may I ask why you found Super Group enticing? Thanks

    ReplyDelete
    Replies
    1. Hi Anon,

      I like the consumer staples sector that Super Group is in. After reading some articles, I quite like that sector a lot.

      Super Group pays dividends and it has been focusing on expansion. Valuation has come off a lot with the price grind lower and its a level where I feel it's all right for a long term investment. If prices go down more, I would be even more enticed.

      Delete

Observe the house rules.