Sunday, March 25, 2012

If you are not an Investor which ONE stock should you pick

Imagine yourself do not have the time to read through stock picks. You have no time to do your own research. You do not trust the unit trust agents or investment managers. Neither do you have believe in any other trade calls as they are mostly short term trades. The return from fixed (time) deposits are just too low. You do not want to keep too much in cash as well. You want to have some investments (besides properties) for your retirement or children's education fund over the next 10 to 20 years.
Which one stock would you pick? We do not want to look at financials at all in this piece. Judgement beyond numbers will be used. It has to be a stock with very strong brand value, stickiness. No PE, EV/EBITDA or any fancy ratios will be used at all as it does not matter for this one stock for your lifetime. (Some stocks may be expensive now but a good stock will give you back your value in a matter of time not too long down the road)

Let's look at the potential lists of individual stocks and where it must meet the above criteria.

Utilities stocks
Tenaga Nasional, Independent Power Plants or any other water utilities stocks - not really as we already know how poorly run Tenaga is. Other IPPs? Some of these concessions are almost to end over the next 10 years. Gone are the lucrative contracts anymore. Hence No. Utilities stocks do not meet any investments criteria for now.

This sector is more interesting as some of them have given much value to investors over more than 20 years.
CIMB - Well run now but it is very much seen as a one man company right now - Nazir Razak. What happens if there is a change in government - the CEO can be changed as well right? - hence do not buy as it is an unknown.
Maybank - decently managed but not one which you would want to own  as it is not good enough. Anyway, over the last 10 years, it is one of the least performing bank as compared to CIMB or Public.
Public Bank - if we look at banks only, maybe this is the one. Very well run, but the leading man is 80 years of age? It has to prove to me what happens if it changes its management.
Hence for that one stock to choose, banks are not the one.

Telco sectors, you have 4 stocks - Telekom Malaysia, Maxis, Axiata and Digi.
While they performed well over the last 10 - 15 years - the end game is not known yet and it will never be. First there was TM, then Celcom (now Axiata) and later Maxis. Digi has provided a lot of value to its investors as well. However, as you can see winners of the industry changed few times over less than 20 years. This sector is a bit too volatile and technology caused change in regulatory decisions as well.

Constructions and Property stocks
Some construction stocks have given good value to its owner. But Hell No as they are too volatile. Moreover,most construction stocks depended on largesse from the government for jobs. As for properties, again the land bank thing is a hindrance. Example, what happened to one of the property darling, Sunrise.

Petronas Group of stocks - PDB, PetroChemical, MISC
Uninteresting - and what happens when we run out of oil? I am not able to answer that.

Plantations in Malaysia basically refers to palm oil. Maybe this is one of the sectors that will last through time. There are some good stocks there such as IOI, KL Kepong United Plantations. (I would not consider Sime Darby as it is a conglomerate) However, one of the threat is Indonesia, as it seems the prices of oil palm more and more are being dictated by Indonesian planters and government. Anyway, palm oil is more of a commodity stock.

Consumer goods
Tobacco - No. Due to regulatory factors.
Liquor companies - No. Same as above.

Out of all the consumer food companies (Dutch Lady, F&N, Mamee), one stands out - Nestle. It has a very dominant position for two or even three of its brands in Malaysia - Nescafe, Milo and Maggi. Anyone in Malaysia can do without one or the other? (And is Malaysia a growing population? Yes for sure.) Name the competitor brands for Nescafe or Milo? There are, but any one of them are able to shake these brands owned by Nestle? In fact, over time probably Nestle has gained market share from its competitors.

Will it be affected by raw material price inflation? Yes, short term - a definite, No for the longer period. Its brand power provides them pricing power especially for Milo and Nescafe. Its sales volume also provides them purchasing power strength from its suppliers. People can afford not to eat out, but will probably not bother to do without Milo. This one stock, no one cares who its CEO is. Can you name the person? This is one company which the management can make mistakes for that one year and yet be still dominant! There you are this stock is the hedge against inflation.

Is it expensive? Yes, but as I said this stock is for those with really long term outlook.
If you are looking for one pick only, do not even bother to look at its financials. Just take that pick!

For overseas investors, I am referring to Nestle Malaysia and I am also sure Nestle, the one listed in Switzerland is just as fantastic!

Happy Investing!


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