09 June, 2018

Analysis: The Fast Growers

Before we start, I have recently added my stakes in Singtel and Lippert Components at SGD 3.26 and USD 86.00 respectively. This makes Singtel the majority in my holdings. I may have to re-adjust Singtel shares again due to such exposure. For now, I will collect the dividends. Sold Oracle shares at a slight loss to raise cash levels as well as hesitated adding stakes in IRobot when it got cheaper. Accidentally, current portfolio constitutes a 50/50 allocation in SG and US markets.

Now the main topic, I will be running through the fast growers in short summaries.
Young and fast companies usually have the largest growth potentials and also the highest chances of falling apart due to lack of their establishments. In other words, they have high risks-rewards and are possible multi-baggers or the ones that can easily wipe out our money.

Lippert Components Industries

Berkshire Hathaway's acquisition of Forest River and Clayton Homes indirectly made Lippert Components one of its business partner. I actually found Lippert Components after looking up on Thor Industries, which is one of their main customers. The reason of not picking Thor Industries was mainly due to their less attractive dividend yield.

The Recreational Vehicle (RV) industry was surprisingly still a growing trend in the camping world.
RVs, as seen in movies and Breaking Bad, are usually used on family trips and tend to look like old news. Yet, the millennial will be the ones driving to grow this segment further. PEG ratio (5 year expected) also looks very good at 0.62.


Slides from Lippert Components 
LCII’s shares have been punished recently due to fears of expected steel and aluminum tariffs and gradual inventory buildup. At a closer look, inventory buildup over revenue rise is safe at less than 5%. This explains that sales are growing faster than rise in inventory.

IRobot

Earnings, earnings, earnings.
Earnings are ultimately what it all comes down to in investments we made.
I feel that IRobot's annual growth rates do not lie.
As the robot vacuum market has been far from fully penetrated, IRobot’s growth is foreseen with a rate of CAGR of 20%.

However, the public has been fearing that high competition will take up IRobot’s market share -especially after Amazon reported to be interested in the smart home robots business. The worries may be overblown as IRobot has hundreds of patents protecting their intellectual products. As an example, they were recently in settlement with Black and Decker of their existing patents.

In order to protect their dominant market share of 60% , serious investments in heavy research and development are already in the works.


Slides from IRobot
IRobot will be introducing new products as well in the later half of this year with smart home as a focus (similar as Valuetronics) along with plans of using cloud to aid their products' functioning. Despite the prospects, IRobot shares do not come cheap with a high current P/E multiple.

Valuetronics (Sold)

Valuetronics is an electronic play on Internet of Things (Iot) light bulbs and in-car connectivity. Iot lighting itself are expected to grow at a rate of 21% till 2023. The current worry looms on the slowdown in electronics exports, and a healthy correction is common after a long up-run in share prices.

Aptiv, a fast growing self-driving cars manufacturer, is also one of Valuetronics' major customers. Looking at Aptiv's annual earnings and up-trending stock prices, it is pretty obvious how good business is going. Furthermore, Valuetronics possess stable net earnings and attractive yield of around 4.5%. Based in Hong Kong, it serves as some form of regional diversification.

Valuetronics’ chart has started to look ugly recently, making a mini U-turn curve and looking to correct severely downwards. This is what happens when you are not buying near the bottom, you tend to feel less secure “floating” above. I am not trying to speculate by selling but avoiding the pain of holding a loss for months ahead. Valuetronics will be under watch and may be added back if the price gets reasonable to me. For now, I have switched to Bumitama Agri which has similar upside potential and less downside risks. Bumitama Agri is not a true Grower and thus been excluded from this post.

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