Tuesday, January 27, 2015

[SGX Portfolio] SOLD TO YOU SIR!

CDW is actually one of the oldest holdings that I have. Okay, my portfolio isn't even a year yet, but it was one of the first stocks that I bought back in May.
With P/E at 4.4 and a discount of 28% to it's NAV, I think it's hard to complain about this company even if it is doing badly.
Back then I ran a simple screen and came up with this write up about CDW: 
CDW Holdings (D38) (link to annual report) is an interesting story. It is a Japanese owned manufacturing company based in Hong Kong, with operations in China and listed in Singapore. Confusing much? A little, but it is clear that they understand where you should go to milk certain capabilities. HK for access to China, China for access to labour, Japan for access to skill and Singapore for access to capital. I think that they are brilliant! 

They are profitable as a business, but I don't feel too comfortable with their margins of 6.5%. However, when I looked around at competitors, their margins are even worse, with half the industry out! 2013 was the 1st year they clocked in negative cash flow in the past 5 years too. Cash holdings are similar to others in the industry, around 18%, but I like it that they have very little debt. 

Their dividend history is pretty solid too. I wouldn't expect a drop below 0.03c per share, meaning a dividend yield with a base of 2.3% can be expected on the worst case scenario. 
Well, now times have changed quite a bit. From the initial price of $0.131 that I paid for this stock, it has now run up quite a lot.

Based on their recent quarter results, NAV is 14.21 USD cents and earnings for 9 months were 1.10 USD cents. Today's USD/SGD spot rate is 1.344.

This means that P/E has gone up from 4.4 to 9.4, which is earnings multiple expansion of more than double than when I bought it! P/B has gone up from 0.78 to 1.03, erasing the 28% discount and moving into 3% premium.

Of course, an argument is that P/E of 9.4 and P/B of 1.03 is decent, especially for a small cap stock with a market cap of $80 mil odd. And to that, yes I agree, it is decent. However, the margin of safety for me regarding this stock has all evaporated. That is to say, no, I would not buy this stock at this price.

Don't get me wrong, their balance sheet is in an amazing position. Personally, I love how much cash they have on hand. I think more companies should have strong balance sheets like them.

However, I hate carrot-in-front-of-horse investing. I'm not gonna pay for future growth or earnings that have yet to come. I don't invest with illusions of this being the next Apple or Google. This company has gone from ridiculously cheap to fairly valued, and that is enough for me. Fair price for a fair investment.

This is keeping in line with my new philosophy that unrealized profits don't mean a thing unless you know when you lock it in.

I sold my 1 and only lot today at $0.185.

Capital gains = 54 / 131 = 41.22%
Yield = 6.26 / 131 = 4.78%
Total gains = 41.22% + 4.78% = 46%
*transaction costs will be updated later

I hope you like my 1 lot of CDW sir, because I sure like my profits.


  1. fear of seller's remorse is doing more harm than good as it invoke the greatest insecurity to the investor

    1. Hi MH,

      Aye, everyone is suspect to seller's remorse, especially if they like the ideas of owning the underlying businesses and enjoy the narrative. That's why I had to write a whole story to convince myself what I did was the right thing according to my philosophy. Prevent any seller's remorse if the stock doubles from here, haha!

      I don't see many other investors as quick and nimble with their holdings as you are. Zero emotional attachments to your stocks?

    2. Seller's remorse will be cured immediately when the market corrected suddenly.

      I guess l am still waiting for my true self to prevail. Till then, l will go the way of creating wealth through long term investing and short term trading.

  2. Impressive blog, as per the trading scenario is concerned. Good for all SGX traders.


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