The First Class of Minions
The triggering point for initiating this strategy is that I realised that although there were many semiconductor stocks listed on SGX, only 2 made good profits and gave out good dividends. The vast majority were not. See the table below, which is based on the financial results for FY2013, which were the latest available results at the time when I initiated the strategy in Mar 2014. Please note that the figures are not adjusted for consolidations and other corporate actions.
On the probability of a turnaround, I really had no insights into this industry (and why Micro-Mech and UMS made money but the rest did not) and was relying heavily on the guess that convergence among the companies (in either direction) was probable. Exactly how long the turnaround would happen was unknown. Based on the earlier discussion, if the turnaround were to happen within the next 4 years, then all the stocks evaluated would rise.
Besides checking whether the companies could survive, I also considered if a turnaround were to happen, how much money could the companies make. This is where the highest EPS in the past 5 years came in. It is not much use if the companies only made small profits at the peak of an industry cycle.
Next, the stocks must be selling at a cheap price relative to valuation. If they are not cheap enough, the profit potential is reduced. This is why even though Micro-Mech and UMS are profitable companies, they do not make good candidates as minions. The Price/NTA ratio shows that most of the companies have low P/NTA ratios of around 0.50, except for the 2 darlings which are Micro-Mech and UMS. In particular, Sunright only had P/NTA ratio of only 0.20.
Finally, diversification is extremely important. Despite all the checks, I cannot tell for sure which stocks would tank or call a rights issue. To manage this risk, I buy more than 1 stock.
Based on the considerations above, I selected ASTI, Ellipsiz, MIT (Manufacturing Integration Technology), STATS and Sunright for my speculative bets in Mar 2014. Each position was a small one, and I had 5 stocks to spread out the risks. Most of these stocks were sold in the last 1 year. The results are as shown below.
|ASTI||$0.055||$0.056||2%||Sold in Apr 17|
|Ellipsiz||$0.283||$0.380||34%||Sold in Sep 16|
|MIT||$0.066||$0.220||233%||Partially sold in Jul 15|
|STATS||$0.335||$0.625||87%||Sold in Sep 14|
|Sunright||$0.125||$0.305||144%||Sold in Mar 17|
So, the above are my first class of minions. They have graduated with flying colours and gave me enough confidence to continue my minion strategy.
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