Carving a niche with promising concept stocks
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By JOYCE HOOI
01 August 2011
If stock-picking were a game of football, James Lim would be one of those runts who outrun their opponents on the field.
Mr. Lim - currently a research analyst at Asiasons WFG Securities - did not make his debut as the second-ranked stock picker for the 2011 StarMine Analyst Awards by jostling for room at the Shenton Way trough with the big boys.
Instead, when he was with OSK/DMG Partners - his previous employer until September last year - he had zeroed in on the more obscure stocks that investors tend to overlook.
‘For the typical analyst, they like to cover the stocks that are very well-covered. I mean, seriously, if I were to write a report on SingTel, would you read my report or a report by JP Morgan? As a local analyst in a local house, it’s our job to source new ideas,’ Mr. Lim tells BT.
Someone had certainly been reading his reports on Adampak and Armstrong Industrial Corporation last year. His ‘buy’ call on Armstrong was singled out as his most profitable one. Over the 10 months of his recommendation last year, the stock climbed from 24 cents to 41 cents - a gain of 71 per cent which saw it outperforming its peers in the industry by 28 per cent.
Likewise, with Adampak, Mr. Lim saw the stock price climb a good 48 per cent from 21 cents to 31 cents as he maintained his ‘buy’ rating on it for a whole year.
While last year’s macroeconomic picture had been an uncertain one, making a call on the technology sector had been a relative cakewalk, Mr. Lim says.
‘It was pretty simple. Last year was a good year for technology stocks - hard disk drives, in particular. Personal computer sales were going up and (sales of) hard disk drives were also going up. The component manufacturers would benefit. Adampak and Armstrong supply to Seagate and Western Digital,’ Mr. Lim reasons.
Mr. Lim, who started out facilitating trades in the now-closed pit on the Singapore Exchange trading floor, still draws on the skills he picked up in his first job.
‘As an analyst, you need to do two things - analyse the fundamentals of a company and analyse the stock price. The first one is more straightforward (but) the second one is more difficult - you have to consider charts and the macro global outlook of the economy,’ Mr. Lim says.
Standing cheek-to-jowl with traders in the pit, he gained an edge on other analysts that he would eventually come to use - understanding the nature of the market.
‘My experience (in the pit) helped me pick out market skills,’ he says.
At Asiasons, Mr. Lim is staying true to his pursuit of the niche areas of coverage. He is currently focused on concept stocks - companies with earnings that are currently very low or in the red, but are expected to turn around very strongly.
In this area, he has an eye on Anwell Technologies and The Think Environmental Co Ltd (TTEC). Both are not for the conservative fan of blue-chip stocks, engaged as they are in the transition from one industry to another.
Anwell is forging its path in the thin film solar cell business even as it continues to make DVDs and CDs - formerly its core business.
‘If (the thin film solar cell project) takes off as they have projected, they will be among the five players globally to have such a solution,’ says Mr. Lim.
‘It will probably take some time before earnings return to the black, which I forecast will be before the middle of next year.’
Similarly, TTEC, with its foray into gold mining in Mali, is in its third incarnation, having originally been in the furniture business before moving into the waste-to-energy business.
‘A lot of people are saying that valuations (for TTEC) are rather high. But this is another concept stock, in a way. The forecast for gold which they intend to mine is expected to really appreciate. Should gold prices keep going up as they are currently, it should also benefit the company,’ Mr. Lim says.